Over the past decade, India’s tax structure has undergone significant transformations, particularly under the leadership of Prime Minister Narendra Modi. One of the most noticeable shifts is in the way taxes are distributed across income brackets. The middle class, historically burdened by high taxes, has seen relief, while those earning higher incomes, especially above Rs 50 lakh annually, are contributing a larger share of the country’s tax revenues. This evolving landscape has sparked discussions on tax fairness and the effectiveness of the Modi government’s fiscal policies.
Middle Class Relief: A Clear Tax Cut
For years, the middle class in India faced substantial tax burdens, which many argued hindered economic growth and personal savings. However, over the last ten years, the Modi government has made concerted efforts to reduce the tax pressure on this demographic. According to data from the income tax return (ITR) filings, the number of individuals within the middle-income range (those earning less than Rs 20 lakh annually) has been able to file taxes with much lower liabilities than before.
One of the key changes that benefited middle-income earners was the increase in tax exemptions. In 2014, people with annual incomes over Rs 2 lakh had to pay taxes, but under the current regime, individuals earning up to Rs 7 lakh annually are exempt from paying income tax. This policy has helped alleviate the financial burden on millions of middle-class families across the nation, allowing them to retain more of their earnings for savings and investment.
Moreover, the introduction of exemptions and deductions under the Income Tax Act, such as deductions on home loans, medical insurance, and investments under Section 80C, has played a role in reducing taxable income for many individuals. These changes are part of the government’s broader strategy to make the tax system more supportive for the average citizen.
High Earners: Paying Their Fair Share
While the middle class benefits from these measures, high earners are shouldering a larger share of the country’s tax revenues. In the last decade, there has been a dramatic rise in the number of individuals earning over Rs 50 lakh annually. In 2013-14, only 1.85 lakh people reported incomes exceeding this amount. However, by 2023-24, this number surged to over 9.39 lakh—a staggering five-fold increase.
This dramatic rise in high earners is reflected in the substantial growth in their income tax contributions. In 2014, the tax liability of individuals earning more than Rs 50 lakh stood at Rs 2.52 lakh crore. By 2024, that figure had risen to Rs 9.62 lakh crore, representing a three-fold increase in just a decade. This shift is due in part to stricter tax compliance measures and increased scrutiny of high-income earners under the Modi administration’s anti-tax evasion policies.
In fact, a significant 76% of the total income tax collected now comes from individuals earning over Rs 50 lakh annually. This redistribution of the tax burden is seen as a major success of the government’s economic policies, particularly its efforts to clamp down on tax evasion and black money. The implementation of technologies such as the Goods and Services Tax (GST) and the introduction of a more digitalized tax filing system has helped bring more high-income earners into the tax net.
Anti-Tax Evasion Measures: Strengthening Compliance
One of the key drivers behind the rise in high-income earners paying taxes is the Modi government’s focus on cracking down on tax evasion. The government’s strong stance against black money, coupled with the introduction of the black money (undisclosed foreign income and assets) law, has made it difficult for high earners to evade taxes. The push towards greater transparency, along with the implementation of anti-money laundering measures, has prompted a larger number of high-income individuals to declare their earnings.
In addition, the introduction of the General Anti-Avoidance Rule (GAAR) has ensured that people cannot use loopholes to avoid paying taxes. As a result, high earners are now more likely to comply with the tax system, contributing a fairer share of the national revenue.
The Changing Share of Lower Earners in the Tax System
Another significant change in India’s tax profile is the decreasing contribution of individuals earning less than Rs 10 lakh annually. In 2014, these taxpayers contributed 10.17% of the total income tax collected. However, by 2024, this share had decreased to just 6.22%. This is a direct consequence of the aforementioned tax exemptions and deductions aimed at relieving the middle class. While this may seem like a loss in revenue from this group, it reflects the government’s broader goals of reducing economic pressure on low and middle-income earners.
The decrease in the share of taxes paid by the lower-income group also indicates that the government is making efforts to ensure that the majority of the population is not overly burdened. This redistribution of the tax burden is in line with Modi’s promises to make the tax system more equitable and progressive.
The Road Ahead: A Progressive Tax System
India’s tax system, under the Modi government, appears to be evolving toward a more progressive model. High-income earners are contributing significantly more, while the middle class is enjoying some relief. However, questions remain about the sustainability of these reforms, particularly with regard to ensuring that lower-income individuals are not excluded from the system.
As more individuals cross the Rs 50 lakh income threshold, the government may face the challenge of balancing tax rates to maintain fairness while ensuring continued economic growth. Additionally, there is an ongoing need to simplify the tax system, reducing bureaucracy and making it easier for people to comply.
In conclusion, the Modi government’s tax policies have led to a significant shift in how taxes are distributed among income groups. While high earners are paying more, the middle class is benefiting from reduced tax burdens. These changes reflect a broader effort to create a more inclusive and efficient tax system, one that promotes compliance, reduces evasion, and fosters a fairer distribution of national wealth.
