The government is mulling reducing income tax rates for specific groups to stimulate consumption, according to two government sources cited by Reuters. Lowering personal taxes could potentially boost savings for the middle class. An official announcement is expected in July when Finance Minister Nirmala Sitharaman presents the full Union budget for the fiscal year 2025.

Any potential loss in tax revenue due to these cuts might be partly offset by increased spending from these income groups, the source added.

The Bharatiya Janata Party (BJP) despite not securing a majority on its own, formed the government with coalition partners for the third consecutive term.

A post-election survey highlighted voter concerns about inflation, unemployment, and declining incomes, as per Reuters. Household inflation expectations, as per the Reserve Bank of India’s survey, foresee a rise of 20 basis points over the next three months and 10 basis points over the next year.

While India’s economy grew at a robust 8.2% in 2023-24, consumer spending only expanded at half that rate.

PM Modi, in seeking to form the NDA government, stressed plans to enhance middle-class savings and their quality of life, Reuters noted.

The government is considering tax relief for individuals earning over Rs 15 lakh annually, within yet undetermined limits, sources said. Changes may affect a tax scheme from 2020, where income up to Rs 15 lakh is taxed between 5% and 20%, and income above Rs 17 lakh is taxed at 30%.

The personal tax rate escalates sharply with income increases, particularly from Rs 3 to 15 lakh, which the sources described as steep. There is also discussion about reducing tax rates for incomes of Rs 10 lakh and establishing a new threshold for the highest tax rate of 30%.

The government aims for a fiscal deficit of 5.1% of GDP in the fiscal year 2024-25, according to the report.