As Budget Day Approaches, Middle Class Taxation Sparks Debate
As India braces for another Budget Day, the discussion surrounding the tax burden on the middle class, specifically the salaried section of society, has intensified. With only a small fraction of individual taxpayers carrying the weight of the nation’s tax obligations, the outcry for necessary tax relief has become more pronounced. The rising costs of living coupled with stagnant wage growth have left many questioning the fairness and sustainability of the current taxation landscape.
To put things into perspective, the number of tax returns filed by individuals has surged significantly, jumping from 3.35 crore in the fiscal year 2013-14 to an astounding 7.54 crore in the fiscal year 2023-24. However, statistics reveal that many individuals file zero-tax returns, primarily for compliance purposes. In fact, the number of zero-income tax returns has also more than doubled during the same period, from 1.69 crore to 4.73 crore. In contrast, the number of individuals actually contributing to the income tax system has only incrementally risen from 1.66 crore in 2013-14 to 2.81 crore in 2023-24.
These figures highlight the disparity in the taxation system, which seems to disproportionately affect the middle class, who often find themselves facing the brunt of taxation policies. The significant rise in tax-filing numbers correlates with the government’s efforts to formalize the economy, yet it raises questions about equity and fairness in tax collection.
Shifting Tax Burdens: The Personal Income Tax vs. Corporate Tax
The complexity of taxation in India extends beyond individual taxpayers. In September 2019, the government made a significant move by announcing a reduction in the base corporate tax rate—from 30% to 22% for existing companies, and to 15% for new manufacturing firms established post-October 1, 2019. This change effectively shifted some of the burden from corporations to individual taxpayers. As reported, the ratio of personal income tax collections to corporate income tax collections has transitioned from 0.7x in the decade from 2000–2010 to an unprecedented 1.1x for the projected years 2020-21 to 2024-25.
This shift is alarming for many in the middle class, especially as corporate income tax collections have surged from Rs. 5.56 lakh crore in the financial year 2019-20 to an estimated Rs. 10.2 lakh crore by 2024-25—a staggering 83% increase. In contrast, the growth in collections from personal income tax has outstripped corporate tax, rising from Rs. 4.92 lakh crore to Rs. 11.87 lakh crore during the same period, marking an increase of 141%. This data suggests that the middle class is not only contributing significantly to the national revenue but is also experiencing an increasing financial burden due to disproportionate taxation.
GST Contributions: Unseen Yet Significant
Another important aspect of the tax burden on the middle class is the Goods and Services Tax (GST). Annual GST collections in India hover between Rs. 18 lakh crore and Rs. 20 lakh crore, yet the government does not offer a clear breakdown of the contributions from individuals versus corporations. Considering that corporations can claim input tax credits for business-related purchases, it is safe to assert that a substantial portion of GST revenue comes from individual taxpayers.
Interestingly, the data indicates that five states contribute more than half of the total GST collections, with Maharashtra leading at 21.2%. Other significant contributors include Karnataka at 9.3%, Gujarat at 8.4%, Tamil Nadu at 8.2%, and Uttar Pradesh at 6.8%. All these regions, except Uttar Pradesh, have urbanization levels higher than the national average of 31.1%, indicating that GST revenue is primarily generated from urban areas where a sizable segment of India’s middle class resides.
The Actual Tax Burden: A Closer Breakdown
To understand the true financial strain on the middle class, let’s consider three illustrative examples. For an individual earning Rs. 10 lakh annually and saving 30% of their income, the total tax outgo—factoring in an average GST rate of 15%—could reach approximately Rs. 1.6 lakh, equating to about 16% of their total income. If this individual reduces their savings to 15%, the tax outgo rises to 18%, and could escalate to 20% if no savings are made.
In a more substantial earning scenario, an individual with an income of Rs. 20 lakh, saving 30%, would incur a tax liability of around Rs. 3.1 lakh under the new tax regime, along with an estimated Rs. 2 lakh in GST. Therefore, the total tax burden amounts to Rs. 5.1 lakh, or 25% of their income. If the savings drop to 15%, this total would increase to 28%, and if there are no savings, it could climb even further to 31%.
Lastly, an individual earning Rs. 1 crore and saving 30% would face a staggering total tax burden of nearly Rs. 40 lakh, which translates to 40% of their income when considering average GST rates of 23% on consumption expenditure. This percentage escalates to approximately 43% with a savings rate of 15% and can soar to 47% if savings are non-existent.
It’s abundantly clear that the middle class has been perceived as a reliable source of revenue by successive governments. There is a growing and urgent demand for more equitable treatment, including tax breaks and incentives for home and vehicle purchases, as well as fairness in deductions compared to corporations. In a time where household savings are dwindling and corporate wage increases are failing to keep pace with inflation, it is evident that tax relief measures are not just warranted but necessary.
Additionally, the role of government policies in impacting the middle-class financial landscape cannot be overlooked. As per the report by[Hindustan Times](https://www.hindustantimes.com), the fiscal policies must reflect the economic realities faced by the middle class, and stakeholders must advocate for more balanced taxation frameworks.
Exploring A Fairer Tax Future
The path ahead is filled with challenges, but it is imperative to foster a dialogue around fair taxation and the contribution of the middle class to the nation’s economic engine. Understanding the true impact of current policies and the need for reform is vital for creating a more equitable financial landscape for all citizens.
For further insight into taxation challenges, refer to related articles on the evolving tax structure in India on[hamslivenews.com](https://hamslivenews.com) and explore the fiscal policies of other nations to find alternative approaches that may be suitable for India’s unique context. Additionally, learn more about the corporate taxation landscape by visiting credible sources such as[The Economic Times](https://economictimes.indiatimes.com) and[Forbes India](https://forbesindia.com) to understand the dynamics at play in corporate versus individual tax contributions.
In summary, a combination of increased awareness, dialogue, and advocacy for reforms is crucial to ensure equitable taxation that reflects the contributions and challenges faced by India’s middle class.