Finance Minister Nirmala Sitharaman announced significant income tax cuts in her Budget speech today. For fiscal 2021, Ms Sitharaman set the fiscal deficit at 3.5 per cent as the country looked for ways to boost state funding to shore up a sagging economy that has put pressure on Prime Minister Narendra Modi.
The income tax cuts that Ms Sitharaman announced are:
- 5% tax for income between Rs 2.5-5 lakh
- 10% tax for income between Rs 5-7.5 lakh as against 20%
- 15% tax for income between Rs 7.5-10 lakh as against 20%
- 20% tax for income between Rs 10-12.5 lakh as against 30%
- 25% tax for income between Rs 12.5-15 lakh as against 30%
- 30% tax for income above Rs 15 lakh
The government has given an option to individual taxpayers to either continue in the old rate, under which they can still claim tax exemption. Those who opt for the reduced new rate, however, are not eligible to claim several tax exemptions.
Analysts say individual taxpayers must calculate which option is best for them.
Ms Sitharaman's other big announcements include Rs 2.83 lakh crore into the sprawling farm sector and crores more into a central water scheme to get broader economic growth back up from its lowest in a decade.
Ms Sitharaman said the fiscal deficit for the current year would widen to 3.8 per cent of the Gross Domestic Product (GDP), up from 3.3 per cent targeted for the current year.
To help generate revenue, she also announced the government will reduce stakes in the country's largest insurer LIC as part of its divestment programme. No other disinvestment move was announced.
India is grappling with its worst economic slowdown in a decade. The government estimates economic growth this year, which ends on March 31, will slip to 5 per cent, the weakest pace since the global financial crisis of 2008-09.