As the Indian economy struggles with decreasing consumption, the government policymakers are in support of rationalizing the current income tax structure, particularly for lower income levels, as the Indian economy struggles with decreasing consumption, according to the recent development.As reported by The Indian Express, the government officials emphasised fiscal consolidation, tax rate reductions for individuals making less money are probably going to take precedence over giveaways or overspending on welfare.According to the officials, tax cuts might be a more effective way to increase disposable income, which would boost consumption and stimulate the economy.The officials also clarified that increasing consumption is thought to be essential for recovering demand, which is essential for resuming the investment cycle and, in particular, for igniting private capital spending in industries that cater to consumers, which may help in increasing GST collections.Meanwhile, it is worth noting that the government considering a tax rate cut to boost demand and trigger private investment is a common strategy to stimulate economic growth. How tax rate cuts can boost demand and investmentIncreased Disposable Income:For Individuals: Lower tax rates increase the disposable income of consumers. With more money in their hands, consumers are likely to spend more on goods and services, boosting demand across various sectors.For Businesses: Reduced corporate taxes leave companies with more profits. This can lead to increased investments in business expansion, research and development, and hiring, further stimulating economic activity.Enhanced Consumer Confidence: Tax cuts can improve consumer sentiment by making individuals feel wealthier and more optimistic about their financial future. Higher consumer confidence typically leads to increased spending and investment.Encouragement of Private Investment: Lower taxes on corporate profits can make investments more attractive. Businesses are more likely to undertake new projects, upgrade infrastructure, and expand operations when the post-tax return on investment is higher.Small and medium enterprises (SMEs) particularly benefit from tax cuts, as these reductions can significantly improve their financial viability and growth prospects.Competitiveness and Foreign Investment:A lower tax environment can make a country more attractive to foreign investors. Multinational corporations may choose to set up operations or expand in a country with favourable tax policies, bringing in capital and creating jobs.However, everything will get clear as the newly formed Bharatiya Janata Party (BJP)-led National Democratic Alliance government is expected to present the budget for the financial year 2024-25 by the third week of July.
