At a time when the middle class has come under immense pressure of inflation particularly due to the increased food prices and the government is determined to limit the fiscal deficit to under 4.5% of the GDP, the most interesting question being asked in the business circle of the country is: will Finance Minister Nirmala Sitharaman give any concession, however symbolic it may be, to the salaried people?
Will the Finance Minister slash the Income Tax rate, or will she increase the minimum income to be taxed at the rate of 30%?
Will she bring the interest earned on the fixed deposit scheme out of the tax consideration?
Will Nirmala Sitharaman increase the benefit of tax deduction from the interest paid on housing loans?
How Many People Pay Income Tax In India?
According to data shared by the government in 2024, only 8.09 crore people in India pay Income Tax. It was just 7.40 crore in FY 2023-24 and 6.72 crore in FY 22-23 while 6.48 crore in FY 2020-21.
Also Read: Union Budget 2025: Will Nirmala Sitharaman Replace Income Tax Act With Direct Tax Code?
In the FY 2023-24, only 4.40 crore people got the annual salary of Rs 2,50,000 to Rs 50,00,000. However, the Income Tax along with the transaction tax, collected during the FY 2023-24 was Rs 10.45 lakh crore. It was more than the corporate tax of Rs 9.11 lakh crore during the period.
The Ministry of Finance has estimated to collect Rs 11.87 lakh crore during the FY 2024-25.
Will Nirmala Sitharaman Increase Standard Deduction?
As the standard deduction was increased in FY 2024 to Rs 75,000 from Rs 50,000 in FY 2023. The experts believe, Finance Minister is not likely to increase the stadard deduction this year.
Standard deduction is the amount that is deducted from the annual income before the tax calculation is made. It is a way of giving relief to all taxpayers. No one should any such relief this year.
Will Sitharaman Review Income Tax Slabs?
Experts believe Nirmala Sitharman may review the income tax slabs, and the 30% slab should come into effect from an income of Rs 25 lakh. It may be an attempt to appease the professionals and the upwardly mobile urban working class.
Some analysts believe, the government should reduce personal income tax rates as the middle class is highly impacted by inflation and food prices.
After the standard deduction was hiked by Rs 25,000 to Rs 75,000 and the tax slab was reduced in FY 2023-24, a common taxpayer could save up to Rs 17,500 in the new tax regime. The exemption limit for the Income Tax was increased to Rs 7 lakh in 2024-25.
According to the data shared by the I-T Department, this magnanimity of the Finance Minister resulted in a reduction of
income tax collection from taxpayers earning less than Rs 10 lakh by 6.22% of the total tax paid in 2024 from 10.17% in 2014.
Similarly, those earning between Rs 7 lakh and Rs 10 lakh annually, were expected to pay Rs 43,000 in FY24.
Income Tax Outpaces Corporate Tax Collection
Experts believe the continued increase in the number of taxpayers every year is a clear indication of expanding base and better compliance, which are signs of a healthy economy.
Also Read: Rupee Hits Record Low, Sensex Tumbles: How Will Sitharaman Navigate Budget Amidst Global Pressures?
Improved tax collection also alleviates immediate pressure for significant rate cuts and underlines the importance of a cautious approach to Personal Income Tax reform.
It is to be noted that the inflation soared to 6.2% in October, much above the RBI’s target of 4% for the period.
It is also alarming that food prices and borrowing prices have increased significantly and reduced consumption, particularly in urban areas, which account for almost 60% of the GDP.
Why Low Income Tax Rates Are Good?
Considerable reduction in consumption is considered to be one of the main factors for the fall in the GDP growth rate from 8.2% in FY 2023-24 to an estimated 6.3% in FY 2024-25.
In the pre-budget presentation before the Finance Minister, the Confederation of Indian Industries (CII) suggested that the income tax rates should be slashed, tax slabs be reduced and other actions should be taken so that the salaried class is left with some additional disposable income.
It argued that the disposable income will push consumption and investment and it will fetch more revenue to the government, and the economy would move forward.
Will Nirmala Sitharaman Slash Fiscal Deficit?
On the other hand, Nirmala Sitharaman is left with no alternative to limit the fiscal deficit at 4.5% of the GDP. The GDP growth rate has come down instead of going up, the corporate tax collection is less than the Income Tax.
Though it is a good sign that the Income Tax revenue collection has outpaced the corporate tax collection, the question can be asked: why the income taxpayers should not be given concessions and milched while several sops may be announced for the corporate taxpayers?
