Lower taxes are possible, according to a report citing two government sources, the national government is expected to lower income tax for those making up to Rs 15 lakh annually in the next Budget 2025–2026 in order to help the middle class. The goal of the action will be to increase economic consumption in the face of declining growth.
The Old tax regime permits a number of exclusions and deductions for housing loans, provident fund investments, and insurance investments. Income up to Rs 2.5 lakh is tax-exempt under this system, and higher income bands are subject to progressive tax rates that range from 5% to 30%.
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Introduced in 2020, the New Tax Regime has reduced tax rates but does away with deductions and exemptions. With progressive rates ranging from 5% to 30% across various income levels, this scheme offers tax exemption for income up to Rs 3 lakh. For revenue over Rs 15 lakh, the highest tax of 30 percent is applicable. however this is revised recently in the budget as follows.
| Amount | Rates |
| ₹ 0-3 lakh | Nil |
| ₹ 3-7 lakh | 5% |
| ₹ 7-10 lakh | 10% |
| ₹ 10-12 lakh | 15% |
| ₹ 12-15 lakh | 20% |
| Above ₹ 15 lakh | 30% |
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The sources, who wanted to remain unnamed due to their lack of authorisation to speak to the media, stated that they had not made a decision regarding the extent of any cuts. According to the sources cited, a decision would be made on February 1st, closer to the budget.
To reduce the burden on citizens, eminent economists have also pushed Prime Minister Narendra Modi to lower income tax rates. To seek their opinions and recommendations for the next budget, PM met with leading economists and sectoral experts at NITI Aayog.
According to reports, the government was asked by the economists and sectoral specialists to reduce income taxes, simplify customs tariffs, and include export-supporting measures in the next budget.
On February 1, 2025, Union Finance Minister is expected to deliver the 2025–2026 Budget to the Lok Sabha.
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In July, FM pledged a thorough revision of the Income Tax Act in the most recent Budget 2024–25. The review committee was then established under the direction of Chief Commissioner of Income Tax V K Gupta. The panel’s report is anticipated to be submitted prior to the 2025–2026 budget.
However, “The new Income tax Act, unlikely to be presented in the upcoming Budget Session, will take more than a year to come into effect,” according to a report that cited an official.
It will probably take longer than a year. Systems must change with the times. It will be far more complicated because it will be a completely new Act. It will take time to enable, test, and integrate all new forms and regulations,” a senior government official tol.
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Additionally, the group will concentrate on streamlining the legislation to make it more readable and straightforward rather than suggesting adjustments to tax rates.
Concerns about the slowing rate of economic growth are a backdrop to the anticipated income tax cut. The June quarter saw 6.7% growth in the Indian economy, whereas the July to September period saw 5.4% growth.
Due to lower-than-expected growth in private investment and housing demand, the Asian Development Bank (ADB) recently reduced its forecast of India’s economic growth to 6.5% for this financial year from its previous estimate of 7%.
Additionally, the multilateral development bank has lowered India’s growth forecast for its financial year 2025–2026.
The Reserve Bank of India also drastically reduced its growth forecast for the current financial year earlier this month, from 7.2% to 6.6%.
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