Budget 2024: Income Tax relief for low earners on cards? Report claims govt mulling move to boost consumption

The Centre is reportedly looking at rationalising the current income tax structure, especially for lower income levels, to boost consumption. 

Budget 2024 might prioritize tax cuts for low earners over welfare spending, an Indian Express report claimed.  These tax cuts, the report said, are seen as a better way to increase disposable income, which would boost consumption and economic activity. 

The report noted concerns about the "steep rise" in marginal income tax.

In the new tax system, the first slab of 5% starts at Rs 3 lakh, but by the time income reaches Rs 15 lakh, the tax rate jumps to 30%. So, while income increases fivefold, the tax rate increases sixfold, which is considered too steep, the report said. 

The move will boost consumption, crucial for reviving demand and restarting the investment cycle, particularly in consumer-focused sectors. This could also help increase GST collections, the report further noted.

BT could not independently verify the report.

Budget for the fiscal year 2024-25 will likely be presented in Parliament in late July. Finance Minister Sitharaman is expected to start pre-Budget discussions with industry groups around June 20, and a meeting with Revenue Secretary Sanjay Malhotra is scheduled for June 18.

The upcoming Budget will outline the Modi 3.0 government's economic agenda. Sitharaman needs to stimulate growth without increasing inflation while securing resources for coalition government commitments. The agenda aims to position India as a USD 5-trillion economy soon and transform the nation into a 'Developed India' by 2047.

The Reserve Bank of India projects a 7.2 percent growth for the Indian economy this fiscal year, driven by improving rural demand and easing inflation. The Modi 3.0 government inherits a strong economy with established fiscal discipline, boosted by the RBI's highest-ever dividend of Rs 2.11 lakh crore for FY24.

Key priorities for Prime Minister Modi's third term include addressing agricultural challenges, job creation, sustaining capital expenditure, and increasing revenue growth to maintain fiscal consolidation. Rating agency S&P has upgraded India's sovereign rating outlook to positive, reflecting approval of the economic policies over the past decade. There is potential for a further rating upgrade in the next 1-2 years if the government meets its fiscal deficit targets.

While tax revenues are strong, non-tax revenue remains a challenge due to limited progress in strategic disinvestment, apart from the sale of Air India.