As India gears up for the upcoming Budget, the focus is intensifying on the increasing tax burden borne by the middle class, especially salaried individuals. Despite contributing significantly to the country’s tax revenue, this segment often feels the pinch of a disproportionate burden, prompting louder calls for tax relief and reforms to ease their financial strain.

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Tax Filing Trends and Corporate Tax Reforms

Over the past decade, the number of income tax returns filed by individuals has surged significantly, from 3.35 crore in FY 2013-14 to 7.54 crore in FY 2023-24. However, a considerable portion of these returns is filed for compliance purposes, with individuals showing zero income tax liability. The number of such zero-tax returns has more than doubled during the same period, from 1.69 crore to 4.73 crore. On the other hand, the number of people actually paying taxes has increased from 1.66 crore in 2013-14 to 2.81 crore in 2023-24, highlighting that while many are filing, only a fraction are contributing to the tax pool.

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In September 2019, the government introduced corporate tax cuts—lowering the base rate for existing companies to 22% from 30%, and for new manufacturing firms to 15% from 25%. This led to a shift in the tax composition: Corporate Income Tax (CIT) collections have lagged behind Personal Income Tax (PIT) collections. The PIT-to-CIT ratio, which stood at 0.7x between 2000-2010, has increased to 1.1x from 2020-2025, highlighting a growing reliance on personal income taxes.

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While corporate income tax collections have grown by 83% from Rs. 5.56 lakh crore in FY 2019-20 to Rs. 10.2 lakh crore in FY 2024-25, personal income tax collections have seen an even steeper rise, increasing by 141% from Rs. 4.92 lakh crore to Rs. 11.87 lakh crore over the same period. This shift underscores the increasing financial burden on individuals.

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GST Collections and the Middle-Class Contribution

India’s annual Goods and Services Tax (GST) collections range between Rs. 18 lakh crore and Rs. 20 lakh crore. Although corporations can claim input tax credits for business-related purchases, the brunt of GST is primarily borne by individuals, especially in urban areas where the middle class is concentrated. States like Maharashtra (21.2%), Karnataka (9.3%), Gujarat (8.4%), Tamil Nadu (8.2%), and Uttar Pradesh (6.8%) contribute over half of India’s total GST collections. Of these, all but Uttar Pradesh have urbanization levels higher than the national average, emphasizing the urban-centric tax burden that hits middle-class consumers hardest.

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Real-World Examples of the Middle-Class Tax Burden

The growing tax burden on middle-class individuals is evident when we examine real-life scenarios. For an individual earning Rs. 10 lakh annually and saving 30% of their income, the tax outgo, assuming an average GST rate of 15% on consumption, could be around Rs. 1.6 lakh, or 16% of their total income. If savings drop to 15%, the tax burden increases to 18%, and with no savings, it rises to 20%. This demonstrates how tax liabilities scale with savings habits, but even with prudent saving, the burden remains significant.

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For individuals earning Rs. 20 lakh, the financial pressure becomes even more apparent. Assuming the same savings rate of 30% and an average GST rate of 18%, this person would pay Rs. 3.1 lakh in income tax and Rs. 2 lakh in GST, totaling Rs. 5.1 lakh in taxes, or 25% of their total income. If the individual saves 15%, the tax burden climbs to 28%, and with no savings, it reaches 31%. These figures highlight how even those with higher earnings are not immune to the regressive nature of taxation in India.

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At the higher end of the spectrum, an individual earning Rs. 1 crore and saving 30% would face a combined tax burden of nearly Rs. 40 lakh, or 40% of their income, considering both direct taxes (income tax) and indirect taxes (GST). If the individual saves only 15%, the total tax burden increases to 43%, and with no savings, the figure rises to 47%. This clearly illustrates the heavy financial load placed on high-income earners, who often bear a larger portion of the tax burden despite already substantial contributions.

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The Growing Call for Relief: A Fairer Tax System for the Middle Class

The middle class, particularly salaried individuals, has long been a significant source of tax revenue for the government. However, many feel that the system is heavily skewed against them. With stagnant wages and rising inflation, their disposable income is shrinking, and the financial pressures are mounting. There is a growing demand for tax reforms that offer meaningful relief, such as tax breaks, higher deductions for essential expenses like healthcare and education, and parity with corporations when it comes to deductions and exemptions.

As household savings continue to decline and wages fail to keep pace with the cost of living, the middle class is increasingly looking to the government for assistance. The tax system, while necessary for the functioning of the state, must strike a balance between ensuring adequate revenue for the government and easing the financial burden on citizens.

A fairer approach would include considering the changing economic conditions and ensuring that the middle class is not overburdened. Reforms that encourage long-term savings and investments, along with incentives for home and vehicle purchases, could go a long way in alleviating some of the financial pressure on this critical demographic.

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The Need for Policy Action

The upcoming Budget provides an opportunity for the government to address the mounting concerns of the middle class. By implementing policies that offer genuine tax relief and ensure that the tax burden is distributed equitably, the government can provide the support that the middle class urgently needs.

Relieving the middle class of some of its financial strain will not only improve individual financial well-being but also stimulate broader economic growth. As India continues to evolve, it is essential that the middle class, a driving force behind the country’s economic development, receives the attention and relief it deserves.

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