Tax Slab Reform
Tax specialists are suggesting a considerable change to India's income tax structure. The main point of contention is the current 30% tax slab. Presently,
this top tax rate kicks in for individuals earning over Rs 24 lakh annually. The proposal entails raising this threshold to Rs 35 lakh. This adjustment is primarily advocated to neutralize the impact of inflation on taxpayers. By raising the income threshold at which the highest tax rate applies, the government aims to give the middle class more spending power. In theory, this should lead to an increase in overall economic activity and a more equitable distribution of wealth. This potential change is viewed as a strategic financial move, intended to better align the tax system with the current economic landscape and support overall economic health.
Inflation-Adjusted Taxes
The fundamental argument for overhauling the tax slabs is the need to adjust for inflation. Over time, inflation erodes the purchasing power of money, meaning that the same amount of money buys fewer goods and services. Without adjustments, taxpayers could get pushed into higher tax brackets due solely to inflationary increases in their nominal income. This 'bracket creep' effectively raises taxes without any real increase in their earning potential. Indexing the tax slabs to inflation is seen as a means of mitigating this effect. It ensures that the real tax burden remains stable, and people are not unfairly penalized by inflation. The debate over this issue is likely to gain further momentum, especially as the government prepares the budget for 2026.
