RBI, FinMin to work together; Tax relief, interest rate cut to boost demand: FM Sitharaman ahead of new I-T bill

Finance Minister Nirmala Sitharaman said on Saturday, February 8, 2025 that fiscal and monetary measures announced by the government and the central bank recently will help boost consumption and promote private investment. 

Budget 2025 proposed a slew of measures including significant income tax cuts for the middle class. Individuals earning up to ₹12.75 lakh in a year will not have to pay any taxes, benefiting nearly one crore taxpayers. On the monetary side, the Reserve Bank of India (RBI) slashed the repo rate by 25 basis points, the first rate cut in five years to support growth.
 

'Tax relief, interest rate cut to boost consumption'

As a result of tax relief proposals, the government will forego revenue of ₹1 lakh crore in direct taxes and ₹2,600 crore in indirect taxes. It expects that taxpayers saving money through lesser income tax will plough it back in the economy in the form of either consumption, savings or investments.

At a press conference on Saturday after her customary post-Budget meeting with the Central Board of Directors of the RBI, FM Sitharaman said industry is clearly seeing the signs of a possible recovery of consumption. She added all her post-Budget interactions with industry and business leaders give her a sense that the consumption sentiment had improved.

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"After the Budget, the few inputs I've had from some business leaders is that the orders for fast-moving consumer goods for April-June are already getting booked, and the industry is clearly seeing signs of a possible recovery of consumption," she told the media after addressing the RBI Board.

“As a result”, she said, many of them are looking at reviewing their capacity utilisation itself, which means you can safely see that the triggers for a consumption-driven cycle are clearly being felt by those who have to make investment decisions," explained the finance minister.

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"So, I see this as a positive sign and with yesterday's decision of the RBI, together things can move in alignment and the required traction we made in this course," she said. She also said both the government and the RBI will continue to work in a well-coordinated fashion to prop up growth and contain inflation.

Talking about the new Income Tax (I-T) Bill, FM Sitharaman, during the press conference today, said the Cabinet has cleared the new income tax proposal on Friday. "I hope to have it introduced in the Lok Sabha in the coming week," she said. Post the inroduction, it will go to a committee for scrutiny.

The new I-T bill which will replace the six-decade-old I-T Act. The Union Cabinet, chaired by Prime Minister Narendra Modi, approved the bill on Friday. Sitharaman had first announced a comprehensive review of the Income-Tax Act, 1961 in the July 2024 Budget.

As part of comprehensive review of customs rate structure announced in July 2024 Budget, on February 1, 2025 she proposed to remove seven tariff rates. This was over and above the seven tariff rates removed in the 2023-24 Budget. There will be now only eight remaining tariff rates, including 'zero' rate.

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