From Popcorn to Paychecks: How India’s Tax Policies Are Failing the Middle Class

India's tax system, once viewed as a mechanism for equitable growth, has increasingly become a battlefield where the middle class bears the heaviest burden. Recent tax reforms have highlighted a deeply entrenched reality: while the wealthy continue to reap the rewards of an inequitable system, the middle class is relentlessly squeezed, left to navigate a complex, contradictory framework that seems to favor the elite rather than the nation’s core demographic.

Finance Minister Nirmala Sitharaman, in her defense of the reforms, claims that the government has taken steps to ease the tax load on middle-income earners. However, a closer examination reveals a different narrative. High-income earners now account for a staggering 76% of the total income tax revenue, underscoring the disproportionate contribution of the wealthy to the system. Meanwhile, individuals earning between ?10-15 lakh annually have seen a dramatic reduction in their tax liabilities. On the other hand, those earning less than ?10 lakh—who constitute a significant portion of the workforce—have seen little to no relief, even as they continue to face mounting pressures from inflation and the rising cost of living.

The Goods and Services Tax (GST), which was initially heralded as a transformative policy under the banner of “one nation, one tax,” has, in practice, become a convoluted and inefficient system. The tax rates on basic goods are so inconsistent that they appear almost arbitrary. For example, salted popcorn is taxed at 5%, while caramel popcorn—often seen as a luxury snack—carries a tax rate of 18%. Basic staples like roti and paratha are taxed at different rates, leading to confusion and frustration among consumers. Is this a rational tax policy, or a satirical commentary on governance? Even more troubling is the tax on prosthetics—life-changing devices that provide dignity and mobility to countless individuals. This not only reflects the system's inherent flaws but highlights a stark lack of empathy, as it disproportionately burdens the vulnerable. From luxury yachts to basic commodities, the GST framework is not simply failing—it is, in many respects, mocking the very citizens it is designed to serve.

While Finance Minister Sitharaman defends the system by pointing out the 39% dividend tax on wealthy shareholders, small and medium-income taxpayers continue to be subjected to tax rates that remain below 10%. However, this narrative is misleading. It ignores the fact that corporate tax rates, which benefit large corporations and their wealthy owners, remain lower than personal income taxes for many individuals. This creates a system in which the affluent and corporations enjoy a more favorable tax environment, further entrenching inequality. Moreover, the new regime's reduction in the effective tax rate for higher incomes exacerbates this divide, favoring those who have the resources to invest significantly in financial markets, leaving the average worker behind.

Despite efforts to offer relief through increased standard deductions and revised personal income tax slabs, these adjustments have not kept pace with inflation, which has eroded the purchasing power of middle-class families. In fact, many families report feeling more financially strained, as the costs of essential goods and services continue to climb, exacerbated by an inefficient GST system that taxes basic necessities at higher rates than luxury items. For the middle class, these persistent challenges make it seem as though the government's tax policies are more concerned with catering to the wealthy than with providing any meaningful relief to the hardworking individuals who form the backbone of the nation’s economy.

The trajectory of India's tax policies raises significant questions about the fairness and equity of the system. As the rich continue to thrive under favorable tax conditions, it is the middle class—already struggling with inflation and rising costs—who are left to carry the burden. In light of these disparities, there is growing support for proposals such as a wealth tax and inheritance tax, aimed specifically at the ultra-wealthy. Such measures could generate substantial revenue—estimated between 2.5% and 5% of GDP—which could then be reinvested into social services that would directly benefit lower and middle-income groups, fostering a more balanced and equitable society.

India’s tax reforms have inadvertently fostered an environment where wealth continues to be concentrated in the hands of a select few, while the middle class is left to bear a disproportionate burden. As policymakers address the complexities of economic reform, there is an urgent need for a fundamental overhaul of the tax system—one that prioritizes fairness, inclusivity, and social equity. It is crucial that all citizens, regardless of income bracket, share in the nation’s economic growth rather than being excluded from its benefits. The middle class, often seen as the backbone of the economy, deserves a tax system that genuinely supports their growth, aspirations, and overall well-being, rather than one that perpetuates inequality and marginalization.