Dreams on Hold: The Emotional and Financial Struggles of India’s Middle-Class Due to High-Direct & Indirect Taxes.

As the clock strikes midnight and a middle-class household settles down for the night, a familiar scene unfolds in countless homes across India. A father sits hunched over a table, calculator in hand, poring over bills and tax forms, while a mother wonders how to stretch the monthly budget to cover rising expenses. In another room, an elderly parent battles the ailments of old age, their medical expenses adding yet another layer of financial strain. In the corner, children dream of a future filled with opportunities, unaware of the sacrifices their parents make daily to secure their education and well-being. This is the silent struggle of India’s middle class—a backbone of the nation’s economy that bears a disproportionate financial burden, caught in the relentless tide of rising taxes and shrinking savings. The story of their resilience is one of quiet heroism, but the weight they carry often goes unrecognized.

Income Tax Structure and Its Impact

India’s income tax structure follows a progressive regime, where tax rates increase with income. This system aims to ensure that those who earn more contribute more. However, for the middle class, this progressive taxation often translates into a significant chunk of their earnings being diverted to taxes, leaving very limited room for savings and investments.

The primary pain points for the middle class in India’s tax system include:

• High Tax Incidence: Individuals earning between INR 7 lakh and INR 15 lakh often fall into the 10% and 20% tax brackets, which constitute a substantial portion of their annual income.
• Limited Deductions: While Section 80C provides deductions of up to INR 1.5 lakh for investments in specified instruments, this limit has remained unchanged for years, failing to account for inflation and rising living costs.
• Inflationary Pressures: The rising cost of living, coupled with static deduction limits, reduces the real disposable income of middle-class families.
• Indirect Taxes: Beyond income tax, the middle class bears the brunt of indirect taxes like GST on essential and non-essential goods. This means that whether they are purchasing groceries, fuel, or household appliances, a significant portion of their spending goes towards taxes. The cascading effect of GST on everyday expenses compounds the financial strain, leaving little room for discretionary spending.
• Tax on Everything: From mobile recharges and internet services to restaurant bills and travel tickets, the middle class faces taxes at almost every stage of consumption. This pervasive taxation often feels like a double burden—income is taxed when earned and again when spent.

Here’s an in-depth look at how a middle-class person earning ?10 lakhs annually might allocate their income, factoring in taxation, living expenses, and savings under current conditions in India.

Under the new regime, no deductions like Section 80C or standard deduction are allowed. The rates are as follows:

• ?0 to ?2,50,000: No tax
• ?2,50,001 to ?5,00,000: 5% = ?12,500
• ?5,00,001 to ?7,50,000: 10% = ?25,000
• ?7,50,001 to ?10,00,000: 15% = ?37,500

Total Tax = ?75,000 Add 4% Health & Education Cess = ?78,000

To calculate the in-hand monthly salary under the new tax regime:

• Annual Income: ?10,00,000
• Tax Payable: ?78,000
• Net Income After Tax: ?10,00,000 - ?78,000 = ?9,22,000
• Monthly In-Hand Salary: ?9,22,000 ÷ 12 = ?76,833

This calculation assumes no additional deductions like provident fund (PF) or professional tax, which could further reduce the in-hand amount.

Breakdown of Expenses and GST Impact:

Total:

• Total Monthly Spending: ?61,200
• Total Monthly GST Paid: ?4,916

PM Net Income Rs. 76,833 Less Expenses after GST Rs. 66,116 = Rs. 10,717 (Saving) Approx 12.8% of PM CTC.

Growing Concerns About Tax Revenue and Its Impacts

The Union government’s revenue from direct taxes reached a 24-year high in 2024, with the direct tax-to-GDP ratio hitting 6.64% in FY23-24. While this suggests better tax compliance and a growing tax base, it also raises concerns that the government may be overtaxing its citizens, especially as personal income tax collections have quadrupled from Rs 2.66 lakh crore in FY15 to Rs 10.45 lakh crore in FY24.

The middle class, which comprises only around 2% of the population, is contributing a disproportionate share of taxes, more than many large corporations.

High tax rates, both direct and indirect, are steadily eroding the quality of life for middle-class and poorer households, forcing lifestyle adjustments that affect everything from nutrition to education. With rising income taxes and GST, these households are left with less disposable income, limiting their ability to save, invest, or even spend on basic comforts. For many, this means cutting back on essentials, delaying healthcare, reducing educational investments for children, and forgoing leisure activities entirely. This downward adjustment in lifestyle not only dampens consumer confidence but also risks deepening economic inequality, as these groups are left further behind in pursuing upward mobility.

The Goods and Services Tax has compounded financial pressures on poorer sections and the lower middle class, who now face higher costs for everyday essentials due to increased indirect taxes. While GST was intended to simplify tax collection and broaden the tax base, its impact on low-income households has been disproportionate. Essential items such as processed foods, healthcare, and even hygiene products are now subject to GST, which reduces disposable incomes for those already struggling to make ends meet.

Economic Impact of High Tax Revenues

An excessive focus on tax collection from individuals can have adverse effects on the economy. For India, it could dampen economic activity by reducing disposable incomes and, in turn, consumption, thus impacting long-term growth. Indirect taxes like VAT, which increase the cost of goods, can further curtail consumer spending.

Instead of relying heavily on the middle class, the government could explore other avenues for revenue, particularly corporates. Despite reporting higher profits, corporate tax contributions have declined as a percentage of total receipts. In 2019, the government’s decision to slash corporate tax rates led to an annual revenue loss of Rs 1.44 lakh crore, even as corporate profits quadrupled between FY20 and FY23, according to the Economic Survey.

India’s tax system has sparked much debate, with many arguing that a comprehensive overhaul is overdue. The government needs to strike a balance in its approach, taxing both individuals and highly profitable corporations more equitably.

Those struggling to make ends meet face a double taxation burden, paying income tax and then taxes on spending, while corporations are taxed only on profits after expenses. Continuing to increase the tax load on individuals limits the government’s ability to stimulate the economy by increasing the disposable incomes of those who need it most. New ways must be devised to ensure the middle class retains more of its earnings to spur growth and strengthen economic resilience.

Proposed Solutions to Alleviate the Burden

• Increase Tax Deduction Limits: Revising the limits under Section 80C and Section 24 (interest on home loans) to reflect current economic realities could provide immediate relief.
• Introduce Middle-Class Specific Tax Benefits: Tailored tax benefits for education expenses, healthcare costs, and first-time home buyers can ease financial pressure.
• Rationalize GST Rates: Reducing GST on essential goods and services would lower the indirect tax burden on middle-class households.
• Encourage Savings and Investments: Introduce new tax-saving instruments or enhance the benefits of existing ones to encourage long-term savings and financial security.
• Simplify Tax Compliance: Streamlining the tax filing process and reducing bureaucratic hurdles can improve compliance and reduce the psychological burden of taxation.

The Broader Perspective

Alleviating the tax burden on the middle class is not just an economic necessity but also a political imperative. A financially empowered middle class translates into increased consumption, higher investments, and, ultimately, a more robust economy. Policymakers must strike a balance between revenue generation and equitable taxation to ensure that the aspirations of the middle class are nurtured, not stifled.

Conclusion

As the sun sets on another day of relentless toil, the middle class of India continues its silent battle. They sacrifice their comforts and forego their dreams, striving to build a better future for their children while supporting their aging parents. These families shoulder the weight of the nation’s aspirations, yet they often go unnoticed and uncelebrated. Their resilience and quiet determination fuel the economy, and it is time for their burdens to be recognized and eased. A brighter, more equitable future for India lies in the hands of policymakers who choose to honour and empower this vital demographic. It is not just an economic imperative—it is a moral one.