In recent times, it has been reported that the government is considering cutting personal income tax rates. The thinking is that with lower tax rates, disposable incomes will rise. When disposable income increases, the demand-side of the economy will grow as well. Consumption growth is expected to drive a revival in the economy. This is in addition to the move to cut corporate tax rates, which were slashed to 15% for new manufacturers and 22% for existing companies. While the cut in corporate tax rate is aimed at reviving investment sentiment, a cut in personal income tax is expected to spur consumption growth.

A Reuters report quoted a government official saying, "We are discussing tinkering with...income tax rates so that more money is put in the people's hands”.

The Central Board of Direct Taxes (CBDT) has been tasked by the government to simplify the Income Tax Act. This simplification encompasses simpler tax brackets, easing the tax and compliance burden and eliminating excess surcharges that add to the tax burden.

This draft proposal has not been released to the public, but the Direct Tax Code was submitted to the Finance Minister in August. We are all still waiting for a formal update on the same, even though it looks like the slashing of rates will most likely come into effect from the year after next, if at all.

The suggestions are for the tax brackets to be simplified as follows:

Income Bracket Tax Rate
Less than 2 lakhs 0%
Between ₹2.5 lakh and ₹ 10 lakh. 10%
Between ₹10 lakh to ₹20 lakh 20%
Above ₹20 lakh 30%

Currently, the Interim Budget 2019 benefitted those in the ₹2.5-5 lakh bracket of personal income tax by offering a full tax rebate. If the cut in the personal income tax rates happens, it could prove to be a significant relief for those in the ₹5-9 lakh slab as well, who have been paying 20% tax rates for some time now.