The FM’s announcement of an increase in tax rebate under the new tax regime in the Budget 2023 will result in more money in the hands of the middle class. But will it help revive consumption?
By Nehal Gautam and Anagha R Ratna
Mumbai: The increase in the income tax rebate limit from Rs 5 lakh to Rs 7 lakh in the new tax regime in the union budget 2023 bring cheers to retailers and consumer durable companies as the tax-slashing measure is expected to put more money into consumers’ hands.
Rajat Wahi, Partner, Deloitte India said initiatives like raising the exemption of personal income tax from Rs 5 lakh to Rs 7 lakh and simplifying the tax slabs are designed to “revive consumption.”
Retailers look at the new tax regime as a window of opportunity which would benefit the retail sector and stoke consumer spending.
The Indian retail market is expected to grow to $1.5 trillion by 2030 from about $850 billion at present, possibly due to urbanisation and income growth.
While, Rajat Agrawal, chief executive officer, Barista lamented the union budget 2023 gave a “complete miss” to sops like input tax credit the industry was expecting, he termed the personal income tax-related announcements as pro-retail.
“Keeping a positive view, I see measures for bringing more cash flows in hands of individuals through relaxed tax sops, this will certainly have a direct bearing on their spends and we see this as a small window of opportunity which can benefit the retail sector with increased spending,” Agarwal said.
Sitharaman announced new tax slabs and discarded the old twin-structure system which taxed citizens under 25 per cent without exemptions and 30 per cent with exemptions allowed, respectively. The new tax regime will be the default tax regime while the old one will also continue. She also proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent under the new tax regime.
The new tax rates based on annual income are 0 to Rs 3 lakh – Nil, Rs 3 to 6 lakh – 5%, Rs 6 to 9 lakh – 10%, Rs 9 to 12 lakhs – 15%, Rs 12 to 15 lakhs – 20% and above Rs 15 lakh – 30%.
“I introduced in 2020, the new personal income tax regime with 6 income slabs, starting from Rs 2.5 lakh. I propose to change the tax structure in this regime by reducing the number of slabs to 5 and increasing the tax exemption limit to Rs 3 lakh,” Sitharaman said.
The recent tax benefits announced during Budget 2023-24 are expected to leave a significant impact on the finances of salaried and middle-class taxpayers as it will help them gain additional disposable income, which could help boost the economy with increased consumption of retail and non-retail entities.
Retailers lauded the move as with the rise in additional income of the people, they will tend to spend more thereby benefiting the retail industry as a whole.
Aditya Modak, co-founder of jewellery brand Gargi by P N Gadgil & Sons, shed light on how the reduction in surcharge on taxpayers will give positive sentiments to investments in gold, diamond, food and fashion among other sectors.
He said, “The gold import duty has remained the same; we expected it to go down by 2.5%. On the other hand, the reduction in surcharge on super-rich taxpayers will give positive sentiment to investments. Also, the increase in the Income Tax limit will increase the disposable surplus income of the middle class, which will be good for tourism, discretionary spending, and luxury FMCGs”.
Speaking about how the consumption would increase post the implementation of the new tax regime, Subhrakant Panda, President, FICCI said. “A push to investment and consumption was required to keep the growth cycle in motion. This is a step in the right direction amidst a global economic situation which is still not at ease. Moreover, the revision in tax rates under the new regime will augur well on the consumption side.”
