The BJP Led The central government will present the country’s Union Budget on February 1. The government has a lot of key choices to make in the budget that could really boost the economy. There are several areas that need attention to strengthen the economic situation, but one of the biggest focuses should be on increasing consumption.
When people spend more, the economy thrives. To encourage this, the government could consider some moves in Budget 2025, like lowering income tax rates. You might be curious about how adjusting the income tax brackets or cutting rates could lead to more spending. Let’s break it down.
By tweaking the income tax brackets, the government can help raise people’s incomes, which in turn encourages them to spend more. Right now, there are two tax systems in place: the old tax regime and the new one. The government could offer exemptions for those who are taxed under the new regime.
The new tax system has set a maximum rate of 20 percent on income ranging from Rs 3 lakh to Rs 15 lakh, which is lower than the previous tax structure. However, the old system offered various exemptions. In contrast, while the new regime requires less tax payment, it provides minimal exemptions, limited to just a couple of schemes.
Exemptions in the new tax system
In the upcoming budget presentation on February 1, there are expectations for some relief within the new tax framework. The government aims to maintain a robust economy, and by providing tax relief, individuals may be encouraged to spend more rather than save. Increased spending can positively impact the country’s economic health. The key question remains: how much tax relief will be offered?
There are a few predictions regarding this. One possibility is that the government might raise the standard deduction limit from Rs 75,000 to Rs 1 lakh. Another speculation is that the tax-free income threshold could be increased from Rs 7 lakh to Rs 10 lakh. Additionally, there is an expectation that the income bracket for those taxed at 20 percent could be expanded to Rs 20 lakh.
More disposable income benefits the economy
With tax exemptions, the middle class would have more disposable income. If they do not benefit from tax exemptions on savings, they are likely to spend that extra money on their interests and needs. As the fifth largest economy globally, it is crucial for consumption to rise. This will contribute to GDP growth and boost demand in both urban and rural areas. Considering all these factors, the government may make significant decisions regarding income tax.