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The RBI repo rate cut and the government’s income tax relaxation are expected to push consumption in the economy to boost growth and ease financial pressure on the Indian households.
Middle Class Bonanza.
India’s middle class have got two good news back to back — first, massive income tax relaxation in Union Budget 2025-26, and now, the RBI rate cut for cheaper loans and easier EMIs. The moves will push consumption in the economy to boost growth and ease financial pressure on the Indian households.
The Reserve Bank of India’s (RBI) Monetary Policy Committee on Friday reduced the key interest rates by 25 basis points, thus allowing EMI burden to ease for borrowers and loans to get cheaper.
After the latest cut, the repo rate (the interest rate at which the RBI gives loan to banks) stands at 6.25 per cent, down from 6.50 per cent earlier.
Lower EMIs, Higher Consumption
As the RBI has announced a repo rate cut, the loan costs are going to reduce for borrowers and their EMIs will be reduced. Banks will pass on the rate cut benefit to those existing borrowers who took loans or have converted the loans under the repo rate-linked floating interest rate system.
“Most loans have already been converted to the repo rate regime,” HDFC Life Insurance Chairman Keki Mistry said.
Stating that the RBI’s move will boost economic growth, Indian Bank MD & CEO Binod Kumar said the RBI MPC’s focus on liquidity is encouraging, reflecting the concerns of both the government and the RBI.
“Given the government’s budgetary initiatives and the expected rise in household expenditure, we anticipate optimistic GDP growth,” Kumar added.
Anuj Puri, chairman of ANAROCK Group, said the RBI’s decision to reduce the repo rates by 25 bps piggybacks on the recent taxation benefits announced in the Union Budget.
“As such, it is undeniably a major boost to the homebuyers, particularly for affordable housing buyers. Many first-time homebuyers who had been hesitating to take the plunge are likely to make their move now as home loan rates will reduce — as long as banks pass on the key benefits to buyers,” Puri added.
Budget 2025: A Rs 1-lakh-Crore Boost For Middle Class
On February 1, the Union Budget 2025-26 rejigged the new tax regime (NTR) in order to provide relief to the middle class worth Rs 1 lakh crore, while maintaining the status quo on the old tax regime (OTR).
The Budget exempted income tax on annual income up to Rs 12 lakh (from Rs 7 lakh earlier) benefitting over one crore taxpayers in the country and has reduced tax burden from others, with effect from April 1, 2025. It has been done by hiking the rebate and revamping slabs.
New Income Tax Bill
After from these, the government is also planning to bring in the new income tax bill to simplify provisions for better clarity. According to reports, the bill is likely to have a provision that will allow the government to provide income tax relief without the Budget through an executive order.
