The Rising Strain of India's Tax Policies on the Middle and Lower Classes

Disclaimer: This article presents my personal perspective on India's current tax policies (2025) and their impact on the middle and lower classes. It is intended to encourage thoughtful discussion and is not meant to oppose or criticize the current government. The aim is to highlight areas that could be improved for the benefit of all citizens.

The Indian government’s new tax structure for 2025 has been hailed as a relief for the middle class, but a closer examination reveals a different story. While direct taxes have been reduced, the primary beneficiaries are those earning ?8 lakh or more annually essentially the top 10% of earners. On the other hand, those earning less than ?4 lakh annually receive little to no relief, despite rising costs of living.

At the same time, the government continues to rely heavily on indirect taxes such as GST and high fuel prices, which impact all citizens equally, whether they earn ?10,000 a month or ?1,00,000. Despite global crude oil prices being lower than during the UPA era, fuel prices remain high, driving up transportation and essential commodity costs. When fuel prices rise, the cost of everything transported including food, clothing, and other necessities increases, putting a disproportionate burden on low-income workers.

The government's failure to address the issues in railway transportation further worsens the situation. In urban areas, millions of people, including school and college students, as well as office employees, rely on trains for daily commuting. Railways also help people from rural areas travel to cities and towns for education and work. However, instead of improving affordable rail services, the focus has shifted to introducing expensive trains like the Vande Bharat Express, which many cannot afford. At the same time, normal express trains are being slowed down to accommodate Vande Bharat on the same tracks, making travel more difficult for common people.

If ?1 lakh per month is considered the benchmark for the "middle class," what does that say about those earning ?20,000 or less? What relief is there for them? The high GST rates, expensive fuel, and stagnant wages continue to squeeze the lower-middle class and poor, making it harder for them to survive, while the wealthiest benefit from tax breaks. Real tax reform should focus on easing the burden on essential goods and services to ensure fair growth for all, not just the privileged few.

The Dangers of Shrinking Tax Revenue and Economic Imbalance:

The government's current approach may inadvertently lead to reduced tax collection in the long run. By providing tax relief to the wealthiest earners while continuing to rely on high indirect taxes, the government risks shrinking the overall tax base. As the purchasing power of the middle and lower classes continues to decline, consumption will slow, impacting businesses and overall tax revenue.

Government-run institutions like LIC, which depend on public investments, could also face a decline due to reduced disposable incomes. With fewer people able to save, invest, or even meet basic needs, the country’s economic stability is at risk.

In this cycle, the wealthy continue to accumulate more wealth, while the burden on the poor and middle class grows heavier. If these policies persist, they will not only deepen the wealth gap but also harm the long-term fiscal health of the country. Rather than focusing solely on policies that benefit the wealthy, the government must prioritize the needs of the broader population to ensure sustainable and inclusive economic growth for all.

MGNREGA Wage Delays: A Hardship for India's Working Poor:

In India, millions of rural workers depend on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to make ends meet. Designed to provide a safety net with 100 days of guaranteed work and timely wages, the reality today is far different. Wage payments are often delayed by months, leaving laborers with no choice but to take high-interest loans just to buy food. Many families, already struggling with the rising cost of living, are sinking deeper into debt and uncertainty.

The government owes over ?39 crore in unpaid wages, with only 29% of payments processed on time. Furthermore, issues with Aadhaar-linked payments have left nearly 27.4% of workers unable to receive their rightful earnings. For these families, a delay of even a week means skipping meals, children dropping out of school, and medical bills left unpaid. Women workers, who make up a significant portion of the workforce, are often the hardest hit, with few alternative sources of income.

As the rural poor wait for the wages they have rightfully earned, the central government seems to be focusing more on politically strategic states, ensuring that tax revenues and infrastructure investments are directed where they benefit electoral gains. States like Tamil Nadu, which contribute significantly to India’s economy and GST revenue, are often sidelined when it comes to fund allocation. Additionally, plans to redraw Lok Sabha constituencies based on population could reduce representation for states that have successfully controlled their population growth.

For the poor and lower-middle class, these are not abstract numbers but very real struggles: empty stomachs, unpaid bills, and an uncertain future. These people, who work tirelessly to build the country, are being denied what they are owed. How long can they be overlooked?

My Final Thoughts:

In conclusion, the government’s current tax and economic policies, if left unchanged, may result in less overall tax revenue, a weakened middle class, and an economy increasingly skewed in favor of the wealthiest. This approach does not seem sustainable, especially as it continues to ignore the financial struggles faced by the majority of the population. It's crucial to rethink these policies to create a more balanced and inclusive growth model that benefits everyone, not just the privileged few.