Impact of the 2024-25 Budget on the Middle Class: What You Need to Know
Dr Shubhendra Singh Parihar
Professor of Practice | MDPs & Consulting | Case Study Author | Marketing Educator | Researcher | Academic Leadership
There has been significant public outcry over the current budget released by the union government. The taxpaying middle class is notably disappointed. The rising inflation rate, along with the inclusion of cess and surcharges and the increase in Securities Transaction Tax (STT) rates for derivatives and futures, may not be well-received by investors. Specifically, the increase in STT rates to 0.1% for derivatives and 0.02% for futures is concerning. Additionally, raising the capital gains tax for listed equity instruments to 12.5% is expected to dishearten investors. Proposing to tax buy-back proceeds as dividends could also present challenges, as the buy-back route is used not only for profit distribution but also for internal restructuring.
The tax burden on a typical Indian service middle-class individual after the Union Budget 2024-25 can be examined based on the changes in income tax slabs, standard deductions, and other relevant provisions. To understand the impact, let's consider a few scenarios.
Revised Tax Slabs and Standard Deduction
The budget has proposed changes in the income tax slabs and an increase in the standard deduction. Here are the revised tax slabs and the increased standard deduction:
Scenarios for Calculation
Let's consider three scenarios for different income levels within the middle class to understand the tax burden:
Tax Calculation:
Total Tax Payable: ?6,250
Tax Burden: The tax burden for an individual with an annual income of ?5 lakh is ?6,250, significantly reduced due to the increased standard deduction and revised tax slabs.
Tax Calculation:
Total Tax Payable: ?48,750
Tax Burden: The tax burden for an individual with an annual income of ?10 lakh is ?48,750, benefiting from the new tax slabs and higher standard deduction.
Tax Calculation:
Total Tax Payable: ?1,35,000
Tax Burden: The tax burden for an individual with an annual income of ?15 lakh is ?1,35,000, showing a reduction in tax liability compared to the previous tax regime.
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To determine the amount of disposable income remaining after deducting direct and indirect taxes from an income of ?10,00,000, we need to consider the following:
Direct Taxes
Based on the Union Budget 2024-25, the tax calculation for an annual income of ?10,00,000 is as follows:
Revised Tax Slabs (2024-25)
Standard Deduction: ?75,000
Calculation of Taxable Income
Tax Calculation
Total Tax Payable: ?15,000 + ?30,000 + ?3,750 = ?48,750
Cess: 4% of ?48,750 = ?1,950
Total Direct Tax: ?48,750 + ?1,950 = ?50,700
Indirect Taxes
Estimating indirect taxes is more complex, as it depends on individual spending patterns and the applicable GST rates on goods and services consumed. For simplicity, let's assume a typical spending pattern with an average GST rate of 18% on 50% of the income.
Calculation of Indirect Taxes
Total GST: 18% of ?5,00,000 = ?90,000
Summary of Taxes
Disposable Income Calculation
Gross Income: ?10,00,000 Total Taxes: ?1,40,700 Disposable Income: ?10,00,000 - ?1,40,700 = ?8,59,300
After deducting both direct and indirect taxes, an individual with an annual income of ?10,00,000 will have approximately ?8,59,300 remaining as disposable income, according to the provisions of the current budget. This estimation assumes typical consumption patterns and an average GST rate for illustrative purposes.
Inflation affects purchasing power by reducing the value of money over time. This means that as prices for goods and services increase, the same amount of income will buy less. For an individual with an annual income of ?10,00,000, understanding the impact of inflation is crucial for maintaining financial well-being.
Impact of Inflation on Disposable Income, we need to workout the following items.
Assume the current annual inflation rate is 6%. This rate can vary based on economic conditions, but for the purpose of this analysis, we'll use 6%. then the disposable income would be -
Estimating the Impact
Reduction in Purchasing Power
Reduction?in?Purchasing?Power=?8,59,300??8,10,660=?48,640\text{Reduction in Purchasing Power} = ?8,59,300 - ?8,10,660 = ?48,640Reduction?in?Purchasing?Power=?8,59,300??8,10,660=?48,640
This calculation shows that due to a 6% inflation rate, the individual’s purchasing power is reduced by ?48,640.
Summary
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Professor of Practice | MDPs & Consulting | Case Study Author | Marketing Educator | Researcher | Academic Leadership
7 个月You are right. Tax payers middle class don't have any benefit.
SAP S/4 HANA Public Cloud, Signavio Business Process Management, Leadership and Key Account Mgmt.
7 个月Very insightful sir. I believe this not beat retail inflation. Budget is disappointing for middle class year after year. Moreso, when we see that freebies are planned and given to people at the cost of our taxed money. I believe not only tax system but also lack of social equality is a major concern for middle class. We are being taxed at so many levels like - Income tax, GST, Road tax, Toll Tax, state wise fuel tax and what not. So many taxes really. Today, education is so expensive. Any good professional or graduation course doesn't cost less than 3.60 Lakhs to 4.20 Lakhs per year. On paper the calculation looks good but practically speaking, it doesn't serve purpose. Tomatoes are selling between Rs 120 per KG to Rs 140 per KG. At any given time during the year one household vegetable is exorbitantly expensive.