Income tax cuts and new tax slabs ⁠— here’s how Indian Finance Minister Nirmala Sitharaman wants to make people shop more

** BUSINESS** New Delhi: Finance Minister Nirmala Sitharaman after a meeting with the private sector banks, in New Delhi.Photo/Kamal Singh) (
  • The upcoming budget in February is likely to see cuts in income tax as well as new rates for people with high incomes.
  • The Narendra Modi government is exploring ways to put more money in the hands of consumers, according to a report.
  • Consumer confidence is already at a six-year low and is likely to worsen as inflation is expected to spike in the first half of the next year.
  • Recent cut in corporate tax rates did not do the trick for the government looking to boost economic growth as consumer demand went from bad to worse.
India is bracing for its third budget in 12 months. Meanwhile, economic growth has been on a downward spiral as tepid income growth led to penny-wise people further cutting back on consumption— from cars and bikes to even items of daily use.

The ₹1.45 lakh crore corporate tax cut was aimed at boost private investment in creating jobs but businesses are moving slow because even if production of goods and services increase, there is very little demand for them. Come February 2020, Finance Minister Nirmala Sitharaman is expected cut income tax for certain sections and add more tax brackets for the richer taxpayers, according to a report from the wire agency ANI.

New income tax slabs for 2020

Income Exsting Tax RateProposed tax rate
Up to ₹2.5 lakhNilNil
₹2.5 lakh to ₹5 lakh5%10%
₹5 lakh to ₹10 lakh10%
₹10 lakh - ₹20 lakh30%20%
₹20 lakh - ₹ 2 crore30%30%
₹2 crore +30%35%


Those earning over Rs 50 lakh have to pay an additional surcharge anywhere between 10% to 37%, depending on the income, the report added. The proposed slabs are currently being reviewed by a committee for direct taxes.

The broad goal is to put more money in the hands of consumers to kickstart the virtuous cycle ⁠— more demand leading to more production that may lead to more jobs, which will then further boost consumer demand.




Here’s why an income tax cut may be considered in India

As it stands right now, 2020 may not be a good year for the Indian economy. “Consumption will take a further hit,” Anirudh Damani, Managing Partner at Artha Venture Fund told Business Insider.


Amidst slowing growth, the Reserve Bank of India (RBI) has already warned that the inflation will remain high at least until June 2020, especially in food items. If prices of essential items like food rise, people will be left with even less money to spend on discretionary items like cars or eating out.

Slower growth is likely to mean even lesser job creation, and that in turn will further dent consumer sentiment, which is already at a six-year low due to slow growth wages, a lot of which is being eaten away from inflation.


The tougher question to answer for Sitharaman will be where is the money going to come from?

SEE ALSO:
India’s Supreme Court may have paved the way to erase half of the country’s budget deficit
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