After Budget rejig, India’s entry level tax rates lower than other major economies: MC Analysis

Tax rates in India lower in PPP terms

Tax rates in India will be much lower than those in China, France, the US, the UK and Vietnam after finance minister Nirmala Sitharaman proposed a tax cut in the first full Budget of Modi 3.0, a Moneycontrol analysis has found.

Presenting her record eighth straight Budget on February 1, the finance minister raised the tax exemption limit to Rs 12 lakh a year from Rs 7 lakh and also rationalised rates across slabs. The highest slab of 30 percent will kick in from Rs 24 lakh against Rs 15 lakh.

These changes will come into effect from the new financial year which begins on April 1 after Parliament passes the Budget.

Analysis shows that in purchasing power parity terms, which standardises earnings across countries based on the cost of goods and services, India’s standing will improve after the Budget.

The limit for claiming tax exemption has been raised from $33,882 per annum (PPP) to $58,083. In Canada and France, the tax starts at $47,345 and $42,770 per annum (in PPP terms), respectively.

In China, an analysis of PwC data shows that the government provides a standard deduction of 60,000 yuan or $16,901 per annum (in PPP terms) after which tax is applicable.

Vietnam provides a standard deduction of 132 million dong or $18,803 per annum.

The 30 percent tax, whoever, kicks in much earlier for India taxpayers compared to others. While India’s 30 percent tax is applicable at $116,167, in Canada, it kicks in at $146,784.

The 30 percent limits are also higher for China at $118,310 and for the US, while it is lower for Vietnam and the UK at $88,903 and $76,850, respectively.

India’s tax base, however, is much smaller than all these economies. India had approximately 90 million tax filers in 2024-25, just 6.5 percent of the population.

In contrast, Canada had 28.1 million tax filers compared or 76 percent of the population.