Tax overload: ‘One salaried taxpayer is carrying the weight of 100 others’, CA flags disparity

In a country as large and complex as India, the tax system is intended to promote fairness and support national development. But a widening imbalance in how taxes are applied has left the salaried middle class increasingly frustrated. Recent figures show that just 3% of middle-class taxpayers now contribute more in direct taxes than all of corporate India combined—a stark disparity that raises serious concerns about the equity of the current tax structure.

A recent analysis by Chartered Accountant Kapil Gupta has highlighted the disparity in India's tax system, revealing that middle-class individuals are paying more in direct taxes than the entirety of corporate India. This significant discrepancy underscores the challenges faced by salaried taxpayers in a system that appears to favour corporate entities.

India's tax architecture is divided between direct and indirect taxes, with entities often benefiting from deductions and exemptions. "A person earning Rs 9 crore in salary ends up paying over 4 crore in income tax. But a businessman with Rs 20 crore turnover can show a profit of just 1 crore and pay only Rs 30 lakh in taxes," Gupta noted. This contrast showcases the rigid tax regime faced by middle-class earners, particularly those in the Rs 5 lakh to Rs 25 lakh income bracket, which forms the backbone of direct tax collections. The middle class, despite their significant contributions, find themselves in a tight spot, with limited avenues for tax relief.

The issue extends beyond salaried individuals. "An agriculture income of Rs 20 crore pays nothing in tax. And a political party collecting Rs 7,000 crore also ends up paying zero tax," Gupta stated. These legal exemptions have created a tax system where limited groups shoulder an enormous tax burden, leaving compliant taxpayers frustrated. This inequity is a glaring issue that needs urgent attention.

Gupta emphasises the middle class's desire for fairness, stating, "The middle class dreams of fairness. But the reality keeps reminding them that the system does not reward effort the way it should." This sentiment is further exacerbated by a structure that allows influential groups to escape the tax net.

Such imbalances have broader implications, including a potential talent drain, as noted by Gupta. "We wonder why Indias brightest minds are moving out. The one who studies hard, clears tough exams, and builds a career ends up contributing the most, while others with far larger incomes or influence escape the tax net altogether," he said. This trend poses a challenge to retaining top talent within the country, which could have long-term impacts on economic growth.

There is an urgent need for reform to address these disparities to ensure equitable tax contributions across all segments of society. Gupta argued, "At this point, this gap needs to be addressed. If we want to retain our best minds and ensure long-term stability, the tax system must reflect equitynot just compliance."

Currently, only a small fraction of the middle class contributes more in direct taxes than corporations, a situation Gupta describes as, "Its like one salaried taxpayer is carrying the weight of 100 others. The system keeps expecting more from the few who are compliant while letting entire categories go untaxed." This unsustainable model could lead to further economic challenges if not rectified.

Reforming India's tax system to ensure fairness and equity is crucial for national development and retaining talent. Without such changes, the country risks widening the disparity between different income groups and losing valuable human resources to more favourable tax jurisdictions.