ShareNEW DELHI: India’s finance minister unveiled broad income tax cuts on Saturday as Prime Minister Narendra Modi’s government looks to bolster consumption and perk up a slowing economy. The world’s most populous country is forecast to expand at its slowest pace since the COVID pandemic in the current fiscal year, after growing at more than eight percent last year.
Consumers have been burdened by high food inflation and weak wage growth, two factors impacting urban consumption. “The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” finance minister Nirmala Sitharaman told parliament while unveiling the year’s budget.
“Slabs and rates are being changed across the board to benefit all taxpayers.” The finance minister said that individuals earning an annual income of up to 1.2 million rupees ($13,800) would now be effectively exempt from paying income tax. It nearly doubles the previous tax-free threshold of 700,000 rupees.
Cuts were also announced for a newer system introduced in 2020, with annual incomes of 1.6 million rupees to 2.4 million rupees now attracting a tax rate of between 20 percent and 25 percent, down from the earlier rate of 30 percent.
“The middle class provides strength for India’s growth,” Sitharaman said. The changes would result in the Indian government foregoing revenue worth 1 trillion rupees ($11.5 billion), she added. India will post a deficit of 4.8 percent of gross domestic product this financial year, below the 4.9 percent projected during last year’s budget, likely helped by lower capital expenditure.
The benchmark Nifty index gave up initial gains it made during Sitharaman’s speech and was trading 0.19 percent lower on Saturday afternoon in a special budget trading session of the Mumbai bourse.
Interestingly, India has removed import duties on some components key to producing mobile phones, Finance Minister Nirmala Sitharaman announced in the annual budget on Saturday, in a boost for local production efforts and benefiting firms such as Apple and Xiaomi. India’s electronics production has more than doubled in the last six years to $115 billion in 2024, with the country now becoming the world’s second-largest mobile phone manufacturer.
Apple led the India smartphone market with a 23 percent share in total revenue during 2024, followed by Samsung at 22 percent, according to research firm Counterpoint. The list included components for mobile phone assembly such as printed circuit board assembly, parts of camera modules, and USB cables, which were taxed at 2.5 percent earlier. The cuts will help India better cope with a potentially disruptive year of global trade due to US President Donald Trump’s tariff threats.
As Trump hopes for his “America First” policies to lure more manufacturing units back into the US, India is seeking to take advantage of US-China trade tensions to increase its own share of global supply chains. Internally, India’s IT ministry had warned it risks losing out to China and Vietnam in the smartphone exports race if it were to not lower tariffs to lure global companies, Reuters reported last year. Sitharaman, in her budget last year, had announced a review of the nation’s customs duty rate structure to rationalize and simplify tariffs for ease of trade.
The duty review also aimed at removing the so-called inverted duty structures or instances where tariffs on raw materials or intermediate goods are higher than the final products they are used to produce. India’s complicated tariff structure is often cited as a deterrent for efficient local production and a cause of disputes. — Agencies
