Who needs a break from taxes in India? According to the Union Finance Minister, it is those Indians with annual incomes of many lakhs and or even crores. As per the new tax regime introduced in the recent budget, to be implemented for the fiscal year 2025-26, Indians earning salaries of up to 12.75 lakhs a year (almost doubled from Rs 7 lakh previously) no longer have to pay income tax on their income. And the highest tax slab is 30% for an income of over Rs 24 lakhs a year (increased from previously). It is noteworthy that, as a result of these proposals, the government will forego revenue of about Rs 1 trillion in direct taxes and Rs 2600 crore in indirect taxes, according to the minister herself.
How can these tax breaks be justified? Even the media seemed astounded at first, with many admitting that most of the developed world have much higher income tax rates than India – the highest slab being usually above 50%, with salaried people usually paying 33% of their income as tax. The surprise was followed by a rush to rationalise the bonanza. We were informed that income-tax-payers in India are more than in most other countries, so a lot of money will come in despite this exemption. Further, we heard, the countries who tax heavily have governments that use the revenue to provide public facilities. In India, that doesn’t happen. Hence, it makes sense that the government tax less.
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Shouldn’t the question be about why our government does not provide more public facilities? But then sections of the establishment believe that even the current facilities are too much. Thus, one recently saw Supreme Court judges asking whether provision of facilities like subsidised food (rations), stipends, shelter for the homeless, etc. is not turning people into ‘parasites’ and discouraging them from joining the workforce to ‘contribute towards national development’.
The Finance Minister’s own justification for the tax cuts, in her budget speech, was that “The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment.”
Who is this so-called ‘middle class’ which needs more money in their hands? In other parts of the world, the term middle class implies people in the middle of the income spectrum, with their income somewhere around the median income of the country, i.e. the level below which lies the incomes of 50% of the population. Is this class that is earning from 7 to 12 lakhs a year (and above) really the middle class of
India?
Far from it. According to a study by World Inequality Lab (WIL) in 2023, the median income of India is just one lakh a year. Yes, just one lakh. So the actual middle class would be those who earn around this income, from somewhat less to somewhat more. Why is it, then, that the Indian establishment, including the Finance Minister, the media, academia, and others as well, portrays the middle class as those who earn a whopping 5 lakhs to 30 lakhs per year?
One big reason is surely that they themselves belong to this class of earners and would prefer to call themselves middle class. Because this term has, attached to it, a lot of casteist values beloved of the privileged sections of India, mixed up with superficial ‘westernisation’. Middle class implies, for example, dominant caste location, officer-level jobs, ownership of land and gold, high education and a strong sense of entitlement, along with very popular myths of initial poverty, struggle to rise, thriftiness and frugality. The myths are important – they bolster a surreal level of entitlement, such that one can regularly hear this class complain that, while the rich are rich and the poor are poor, it is we ‘middle class’ who are the real sufferers!
This hypocrisy masks the fact that India is actually now one of the most unequal countries in the world, as the WIL study shows. The top 1% of the population cornered a huge 22.6% of national income in 2022, which makes it the highest earning top 1% of any country in the world. The top 10%, meanwhile, cornered over 60% of national income in 2022. And the bottom 50%, i.e. half the population, received only 15% of the national income.
When it comes to national wealth, the top 1% of India owns more than a whopping 40% of national wealth, while the top 10% owns more than 60% — leaving less than 40% of national wealth for 90% of the population. All in all, the country is now more unequal than it was under the British; the Billionaire Raj, as some call it, has left the British Raj far behind.
Coming back to the middle class, the report further reveals that an income of over Rs 20.7 lakhs a year means that you are in the top 1% of the country, while that over Rs 2.9 lakhs a year means that you are in the top 10% of the country.
This is the reality of Sitharaman’s ‘middle class’: the top ten per cent of the country, who now must worry about how to spend even more money. An even more obscene wedding? More gold? More foreign vacations? A couple more cars, or maybe a personal jet? More properties in Goa? So many difficult decisions – all of which will count as boosting ‘national development’ for this
government!
The WIL report also found that the rise in inequality in India had been particularly intense since 2014, when the BJP returned to power. But things could still improve, it says, if the government was willing to invest heavily in public health, education, and nutrition; and, moreover, to collect a “super-tax” of 2% of the wealth of just the 167 richest families in India, in order to facilitate such
investments.
Going by the new tax regime, this is surely the last thing on the Indian
government’s mind.
(Amita Kanekar is an
architectural historian and novelist)
