By IETeam 
As the 2025-26 Union Budget preparations gather momentum, India Inc has voiced its demand for a significant reduction in personal income tax rates. During a pre-budget consultation with the Ministry of Finance, leading representatives from the corporate sector emphasized that lowering tax rates could boost consumption, increase disposable incomes, and act as a catalyst for sustained economic growth.
The Case for Tax Reform
India Inc argued that the current structure of personal income tax needs a recalibration to align with global standards. Industry leaders highlighted that the existing tax slabs impose a substantial burden on the middle class, which, in turn, limits spending power. By reducing personal income taxes, they believe disposable income would rise, thereby stimulating demand across sectors, particularly in retail, housing, and consumer goods.
This perspective aligns with broader global economic trends, where countries are adopting tax reforms to address post-pandemic challenges and enhance domestic consumption. India Inc’s call for tax relief underscores the belief that a robust domestic market is vital for driving the country’s growth story.
Addressing Tax Complexity
Another point raised during the consultation was the need to simplify India’s tax regime. The corporate leaders highlighted that while the government has taken commendable steps to digitize tax filing processes, the complexity of tax calculations and exemptions remains a challenge for many taxpayers. Simplification, along with rate cuts, could improve compliance and broaden the tax base.
The Confederation of Indian Industry (CII) proposed a reduction in the peak tax rate from 30% to 25%, arguing that this would bring parity with corporate tax reforms implemented in recent years. The corporate tax rate was slashed to 22% in 2019, and a similar step for personal income tax could create a balanced tax ecosystem.
Balancing Revenue and Reform
While the demand for tax relief is strong, it raises the question of balancing fiscal responsibility with economic stimulus. The government faces the challenge of meeting its expenditure commitments, especially in areas like infrastructure, defense, and social welfare schemes. Reducing personal income taxes could potentially lead to a short-term dip in revenue collection.
However, industry leaders believe that the revenue shortfall could be offset by a surge in indirect tax collections driven by increased consumption. The Goods and Services Tax (GST), which forms a significant portion of the government’s revenue, could benefit from higher consumer spending resulting from lower income tax rates.
Middle-Class Aspirations
The middle class remains a crucial segment of the economy, and their expectations from the budget are high. With inflationary pressures still prevalent, households are looking for measures that provide financial relief. India Inc’s advocacy for personal tax cuts reflects the growing acknowledgment of the middle class as a key driver of economic activity.
Lowering tax rates could also align with the government’s broader vision of achieving a $5 trillion economy by boosting consumer demand and ensuring equitable growth. Additionally, tax relief for individuals could complement other measures such as enhanced deductions for investments in infrastructure bonds, education, and healthcare expenses.
Experts’ Perspective
Economic analysts have welcomed the idea of rationalizing personal income tax rates, albeit with caution. “Reducing tax rates can have a multiplier effect on consumption, but it’s crucial that the government ensures fiscal discipline,” said a senior economist from a leading think tank.
Others believe that a phased approach to tax cuts might be more prudent. By implementing gradual reductions, the government could mitigate the risk of fiscal imbalances while addressing the needs of taxpayers.
The Road Ahead
With the budget announcement only months away, the Ministry of Finance has a tough task at hand. Balancing the aspirations of industry leaders, the middle class, and fiscal prudence will require innovative thinking and strategic decision-making.
India Inc’s push for personal income tax relief reflects a broader consensus that tax reforms are essential to keep pace with global trends and domestic needs. Whether the government heeds these recommendations will be revealed when Finance Minister Nirmala Sitharaman presents the Union Budget in February 2025.
As the discussions progress, one thing is clear: the demand for tax reforms has set the stage for one of the most anticipated budgets in recent years, with hopes of transformative measures to drive India’s economic growth.