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India’s budget gives tax relief to middle class to boost spending, growth

Income tax rates slashed as the world’s fifth largest economy focuses on spurring domestic demand and economic growth.

Indian Prime Minister Narendra Modi’s government has unveiled an annual budget focused on appealing to the country’s middle class and spurring economic growth by boosting agriculture and manufacturing.

Announcing the annual budget in parliament on Saturday, Finance Minister Nirmala Sitharaman said people earning up to 1.28 million Indian rupees ($14,800) per year will not have to pay any taxes, raising the threshold from 700,000 rupees.

The government also lowered tax rates for people earning above the new threshold, as the world’s fifth-largest economy aims to boost domestic demand amid uncertainty over the global economic outlook due to potential new tariff barriers.

“The new structure will reduce taxes on middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said.

The move will result in an annual 1 trillion Indian rupee ($11.6bn) hit to Treasury revenues, the Reuters news agency reported.

The world’s most populous country is expected to post its slowest growth in four years next year amid frail urban demand and weak private investment, while stubbornly high food inflation has dented disposable incomes, the agency said.

Measures to assist the poor, youth, farmers and women were also included in the budget for 2025-26, Sitharaman said.

Per capita income is about $2,700 for India’s population of 1.4 billion, with about one-third considered middle class.

The tax cut is “likely to spur consumer demand and savings by the middle class that has faced challenges from elevated inflation and lower income growth”, Sakshi Gupta, economist at HDFC

Read more on aljazeera.com
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