Budget 2024 | Finance Ministry may cut income tax for lower-income individuals, first such move in seven years: Report

Union Budget 2024: The Prime Minister Narendra Modi-led government is contemplating measures worth over ₹50,000 crore ($6 billion) to boost consumption in India's upcoming Union Budget. This includes potential tax cuts for lower income individuals, marking the first such cuts in seven years, sources told Bloomberg.

Finance Ministry officials are evaluating proposals to reduce taxes for consumers most likely to spend. The potential beneficiaries are individuals earning between ₹5-10 lakh annually, currently taxed at rates between 5-20 per cent, they said. A new tax slab might also be introduced, the report added.

Ongoing Discussions and Fiscal Discipline

The report added that the plan is still under development. A final decision is expected closer to the Budget 2024 announcement in July, pending approval from the Prime Minister’s Office (PMO).

One source told the publication that despite anticipated revenue losses from tax changes, the government intends to adhere to its fiscal deficit target of 5.1 per cent of GDP for the current financial year.

Approximately half of the proposed ₹50,000 crore ( ₹500 billion) measures will come from tax cuts, with the remainder from other programs. Discussions include increasing the annual cash payment to small farmers from ₹6,000-8,000. There are also talks about raising the annual payment under the minimum job guarantee program and enhancing financial support for women farmers, it added.

Pre-Budget Consultations and Political Context

Finance Minister Nirmala Sitharaman is conducting pre-Budget consultations this week with various stakeholders, including economists, trade unions, and industry chambers. Local media suggests that the Union Budget may be announced on July 22.

A finance ministry spokesperson did not respond to requests for further information.

In recent parliamentary elections, Modi’s Bharatiya Janata Party (BJP) failed to secure an outright majority for the first time since coming to power in 2014, influenced by voter concerns over joblessness and high living costs. Economists suggest the BJP’s weaker electoral performance may lead to more populist spending measures in the budget.

One official highlighted the need for the government to inject funds into the economy for quicker results. Despite the additional spending, the government aims to maintain its fiscal deficit target, aided by strong revenues and a $25 billion dividend from the central bank.

Upcoming state elections in key regions, including Maharashtra, are pressing the BJP to bolster its support. Private consumption, encompassing household and business spending, grew by 4 per cent in the past fiscal year, significantly below the 8.2 per cent economic growth rate in the same period.

(With inputs from Bloomberg)