State of income tax in India: Rich pay more, middle class less

The very word tax spikes fear and tension among working professionals irrespective of their salary. Amid this, data, released by the tax department, revealed that during the 10 years of Prime Minister Narendra Modi-led government, the tax burden on individuals earning less than Rs 20 lakh a year, broadly described as middle class, has decreased, while it has increased for those with annual income above Rs 50 lakh.

ITR filed by rich & middle class

According to income tax return (ITR) filing data, the number of taxpayers showing annual income of over Rs 50 lakh has shot up to over 9.39 lakh in 2023-24, a five-fold or 407 per cent jump from 1.85 lakh in 2013-14.

Also, the income tax liability of those earning more than Rs 50 lakh has increased 3.2 times or 282 per cent, from Rs 2.52 lakh crore in 2014, to Rs 9.62 lakh crore in 2024.

For the individuals in the income bracket of Rs 10 to 15 lakh per annum, the average liability had decreased to Rs 1.1 lakh in FY24 from Rs 2.3 lakh in FY14.

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The average tax liability for those earning between Rs 15 to 20 lakh has reduced to Rs 1.7 lakhs from Rs 4.1 lakhs.

The data also revealed that though the incomes of those on the top of the income pyramid have risen at a fast rate, the number of entry-level taxpayers has seen a very low growth rate. This in a way shows a reduced growth of the middle class, while those in upper strata of the income pyramid are multiplying their incomes.

76% of income tax collected from those earning over Rs 50 lakh

A report by PTI quoted an official source as saying that nearly 76 per cent of income tax collected taxpayers in FY24 were from those earning above Rs 50 lakh a year.

The sources further said that this has led to a reduced tax burden on the middle class.

Also, the increase in the number of people filing ITRs with annual income above Rs 50 lakh is due to “strong anti-tax evasion and black money laws implemented by the Modi government”, the source said.

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Meanwhile, a report by The Financial Express quoted an official source as saying, “Increase in tax mop-up from high-income earners has been possible due to effective tax governance, anti-tax evasion measures carried out in the past 10 years, better compliance, and change in the manner of connecting with the taxpayers.”

The source quoted by PTI said that in 2014, a salaried person earning more than Rs 2 lakh a year had to pay income tax, however, after a slew of exemptions and deductions announced by the Modi government, those earning up to Rs 7 lakh need not pay any taxes.

The income tax collection from taxpayers earning less than Rs 10 lakh has decreased from 10.17 per cent of the total tax paid in 2014, to 6.22 per cent in 2024.

The income tax liability of individuals earning between Rs 2.5 and Rs 7 lakh was an average Rs 43,000 in 2023-24, which is around 4 to 5 per cent of their income — a level which is the lowest amongst emerging economies.

The number of returns filed by those earning between 0-2.5 lakh reduced starkly by 38.6 per cent between FY14 and FY24. “This depicts individuals are moving to higher income ranges,” the FE report quoted sources as saying.

Also, after adjusting for inflation over the 10-year period, there is almost a 60 per cent decrease in tax liability by individuals earning between Rs 10-20 lakh. The number of income tax returns filed by individuals has increased, from over 3.60 crore in 2013-14 to 7.97 crore in 2023-24, representing an increase of 121 per cent, the PTI report quoted sources as saying.

With inputs from agencies.