Is There Room For Relief On Income Tax This Budget? Economists Urge Modi 3.0 Govt For Cuts

In discussions with Prime Minister Narendra Modi, economists have highlighted the pressing need for income tax amendments and customs tariff rationalisation to bolster savings and foster economic development. These discussions unfolded during a pre-budget assembly aimed at formulating strategies to address economic hurdles. The focal point of these recommendations is to lessen the financial strain on citizens, thereby enhancing their purchasing power and stimulating demand across various sectors, particularly those suffering from reduced consumption.

The call to alleviate income tax pressures comes in light of the challenges posed by weak domestic consumption and inflationary pressures. India's economy has shown signs of strain, with the GDP expansion rate decelerating to 5.4% in the July-September quarter, marking the slowest growth in two years and falling below the central bank's 7% growth projection for the period. Additionally, November witnessed inflation rates surpassing the Reserve Bank of India's medium-term goal of 4%, exerting further stress on household finances and dampening discretionary spending. Economists fear that unchecked inflation could further suppress consumer demand, urging the implementation of measures like direct benefit transfers and increased public spending in rural areas to stimulate growth and control price rises.

ECONOMIC URGE TAX RELIEF WITH PM MODI

The dialogue with the Prime Minister also underscored the importance of enhancing employment opportunities, improving data reliability for informed policymaking, and devising targeted strategies to mitigate weak consumption, inflation, and the impacts of global uncertainties. Prime Minister Modi reaffirmed his commitment to transforming India into a "Viksit Bharat" by 2047, emphasizing the need for innovative thinking to maintain a stable growth trajectory amid global economic fluctuations.

INCOME TAX REFORMS IN THE PAST

Reflecting on prior budgetary reforms, the Union Budget for 2024-25 introduced significant adjustments to the income tax framework, offering respite to taxpayers. Modifications included relaxed tax slabs for incomes up to Rs 10 lakh, an increase in the standard deduction for salaried individuals and pensioners from Rs 50,000 to Rs 75,000, and an elevation of the standard deduction for family pensioners from Rs 15,000 to Rs 25,000. Furthermore, the deduction for the employer's National Pension System (NPS) contribution for private-sector employees was enhanced from 10% to 14%. These changes represent the government's ongoing efforts to mitigate financial burdens and stimulate economic participation.

Industry groups such as CII, FICCI, and PHDCCI have put forth a series of proposals for the forthcoming Budget 2025, advocating for extensive tax reforms. Among these are the simplification of capital gains taxes, streamlined tax compliance processes, a reduction in Tax Deducted at Source (TDS) provisions, and the establishment of a specialized dispute resolution framework. On the subject of GST, they recommend introducing a simplified three-tier GST structure, dubbed GST 2.0, and allowing for comprehensive input tax credit on all expenses. Suggestions also encompass direct tax adjustments, including lower tax rates for partnership firms and LLPs, the abolition of the dividend distribution tax, and preferential treatment for share buybacks as capital gains with deductions for share costs. Proposals related to customs aim to simplify procedures by introducing a unified certificate of origin for multiple bills of entry and advocating for zero customs duty on essential raw materials. These recommendations are geared towards streamlining tax administration, reducing compliance challenges, and enhancing the overall ease of conducting business in India.

In conclusion, economists have accentuated the urgency for income tax rate reductions and customs tariff rationalisation in the upcoming budget to invigorate savings and propel economic growth. These suggestions, alongside calls for improved employment opportunities and measures to combat inflation, reflect a comprehensive approach to addressing the economic challenges facing India. As the government contemplates these recommendations, the ultimate aim is to ensure a stable and prosperous economic environment that benefits all sectors of the economy.