New Delhi: The Narendra Modi -led government is contemplating income tax cuts for individuals earning up to ₹15 lakh a year in the upcoming Union Budget 2025, aiming to provide relief to the middle class and stimulate consumption amid slowing economic growth, sources told Reuters.

Benefits for the Middle Class

This move could benefit millions of taxpayers, especially in urban areas grappling with high living costs. Individuals may opt for the 2020 tax system, which offers lower rates but eliminates exemptions like housing rentals.

Tax System Options

Taxpayers have the choice between two systems: a legacy plan with exemptions for housing rentals and insurance, or the 2020 system with slightly reduced rates but no major exemptions. Income between ₹3 lakh and ₹15 lakh is taxed between 5% to 20%, while higher earnings are taxed at 30%.

Sources, speaking on condition of anonymity, stated that the size of any potential tax cuts had not been decided. A final decision will be made closer to the February 1 budget announcement. The revenue loss from the cuts remains unclear, but one source suggested that lower rates could encourage more taxpayers to switch to the simplified system.

Economic Impact and Political Pressure

The government’s tax reforms could help stimulate the economy, which grew at its slowest rate in seven quarters from July to September. Rising food inflation is hurting urban demand for goods, from essentials like soaps to durable goods like cars. Moreover, the government faces growing political pressure from the middle class due to high taxes, especially as wage growth struggles to keep pace with inflation.

(With Inputs from Reuters)