Union Budget 2020-21: Income Tax likely to be slashed to boost growth & consumption

The Union Finance Ministry is expected to announce a slew of measures including flat tax rate without exemptions in the forthcoming Union Budget 2020-21. The government is examining proposals like a cut in personal income tax in line with corporate tax and new slabs for those earning higher incomes. These measures will be announced to boost consumption and revive growth in the slowing economy.

The government is considering the proposals of cuts in the personal income tax as demand for the same gained pace after thee finance minister on September 20, 2019, announced one of the largest corporate tax cuts in the world history. The corporate tax cut was made to attract investments. At present, the annual income up to Rs2.5 lakh is tax-free, while income between Rs2.5-5 lakh is taxed at 5%; Rs 5-10 lakh at 20% and over Rs10 lakh at 30%.

Union Finance Minister Nirmala Sitharaman will present the Union Budget in the Parliament on February 1, 2020. And, all options will be examined to know how such measures will benefit the economy before any final decision is made in this respect.

The finance ministry officials would discuss and present the arguments for and against these proposals before a final call is taken at the highest level. "All options are being examined...any such move needs to be examined in the context of gains it can bring to the overall economy vis-a-vis the cost it entails," a government official told the Economic Times.

The personal income tax rates will be restructured to encourage the middle class to spend more to give a boost to consumption, which has gradually slowed in the first two quarters of the financial year 2019-20.

Meanwhile, the finance minister has already started consultations with various stakeholders on the ways to revive the economy. It has also sought input from netizens for the budget. Earlier this month, the finance minister Sitharaman has said that the government is looking at numerous suggestions including relaxation on personal income tax before it finalizes the final draft of the Union Budget.