Budget 2025: Do income tax cuts make sense and will it revive consumption?
Subscribe to enjoy similar stories. Finance minister Nirmala Sitharaman’s eighth union budget, set to be presented on 1 February, provides a critical opportunity to boost Indian economy's slowing consumption momentum through income tax cuts. There is a compelling case for this move: tax relief announced in the budget in July last year offered minimal benefits to low-income groups and, when adjusted for inflation, worsened the situation for high-income groups, a Mint analysis showed.
Five years ago, the tax exemption limit for income was ₹2.5 lakh. Adjusted for inflation, this would need to be ₹3.1 lakh in 2024-25 to maintain the same purchasing power. However, under the current tax regime, the exemption limit is ₹3 lakh for those earning above ₹7 lakh, which does not fully account for inflation and effectively increases the tax burden.
For individuals earning between ₹7 and ₹15 lakh, the situation has only slightly improved when adjusted for inflation. Read this | Budget 2025 | Tax breaks to spur spending, boost economy? Meanwhile, high earners above ₹15 lakh continue to pay the top tax rate of 30%, unchanged from 2020-21 even though it would take an income of ₹18.6 lakh to maintain the same purchasing power. The July budget’s limited relief, combined with slowing wage growth, has further constrained urban Indians’ purchasing power.
A recent analysis by Emkay Global of listed companies’ real wage growth reveals a slowdown in recent quarters, with growth now substantially below pre-pandemic levels. The underlying stress in the economy became more apparent in 2024 as consumption momentum slowed. Private final consumption expenditure grew by 5.96% at constant prices in Q2 FY25, compared to 7.45% in the previous quarter.
. Read more on livemint.com
