Thread by @DebjaniBhatta20

A Thread on Income Tax and Middle Class

1. #UnionBudget2022 placed. Apart from several excellent proposals and measures suggested in order to achieve sustainable growth of National economy, government suggested no change in the existing income tax rates and exemptions. This is

2. exactly where d typical middle class, generally unaware of the intricate details of economics, remain interested. This is exactly the issue which concerns them the most and this is what they treat as yardstick to measure the extent of concern the government shows towards them.

3. Not unlike with any other previous governments of independent India,this time too they feel deprived. To understand the matter a little more precisely and to judge the extent of justification behind this feeling of the middle class, let us penetrate a little further.
#Budget

4. Firstly, if we want to understand the grievances of the middle class, it's necessarily to understand who this "Indian middle class" are. Thus we face the obvious question regarding the range of income whose earners we can designate as the #middleclass.

5. In the World Inequality Report, 2022, which was very recently under radar of the social media, all the earners of a geographical area (nation or region or the world as a whole) are categorised into three major categories. These are:
#UnionBudget2022

6.
1) the bottom 50% of the earners of the area,
2) the middle 40% that is from 50% to 90% of the earners, and
3) the top 10%.

Now, in 2020, as per the most recent available data, the average per capita income of India was around Rs.1,35,000.00. Again, in the aforesaid

7. World Inequality Report, 2022, it is stated that the average national income of the adult population of India was Rs.2,04,200.00 while the top 10% earned Rs.11,66,520.00 per head.

Thus, it won't be wrong to assume that the class or stratum of the Indian society

8. having annual per capita income falling between the wide range from Rs.1,35,000 to Rs.10,00,000 can be categorised as the "Indian #middleclass".

As it's not at all acceptable that within a single family with pooled income (or, in cases with a single earning member bearing

9. the load of one or more dependant member(s)) different members belong to different social strata, hence it becomes obvious for us to categorise families instead of individuals as belonging to #middleclass. Now, assuming average size of each Indian family to vary from 4 to 6

10. members per family, and also assuming that the lower the income of a family, the higher are the number of members, the "Indian middle class" can be assumed to be those belonging to families with net annual family income varying between Rs.1,35,000.00 × 6 = Rs.8,10,000.00 and

11.
Rs.10,00,000.00 × 4 = Rs.40,00,000.00. Though this family income can well be through multiple number of unequal earning members, but it being equally possible for a family to have only one earning member with all other members dependant on him/her, we categorise all
#Budget

12. individuals having annual income between Rs.8,00,000.00 and Rs.40,00,000.00 to belong to "Indian middle class".

Though this estimate is very much against the popular belief (which assumes the lower middle class to have income well below the income tax exemption limit and

13. the upper #middleclass to have income barely taxable under Income Tax, given that approximately only 3% of Indian population are actually Income Tax payers, thus assuming anybody earning more than Rs.10,00,000.00 or so to be "rich" instead of belonging to middle class), but

14. the numbers never lie. In Bengali we say 'hiseber kori baghe khay na'. I presume that our popular concept of underestimating the income while categorising our fellow Indians into lower, middle and upper income groups come from our deep rooted colonial belief about the poverty

15. of our country. But in reality, India neither is nor ever was a poor country. Only the colonial as well as post colonial drainage of wealth from our country necessitated this feeling of poverty among us.

Now that I have already categorised the "Indian #middleclass" to be

16. those having income range between Rs.8 lakhs and Rs.40 lakhs, we now try to compare people with income of equal value corresponding to their time regarding the income tax payable by them after adjusting against price rise. #Budget

For that, first I am trying to find some

17. method of comparing incomes from across ages and decades. Though the correct method for that is adjusting against price index, but due to unavailability of reliable data regarding price index (considering the change in nature and components of consumption in the same area

18. over such significant span of years), hence we decided to adjust the income with respect to the prices of 24 carat gold during the corresponding time. Thus, when converting the income in rupees during a particular year into the amount of 24 carats gold that can be purchased

19. with that income, we divide d income in rupees by the value of 1 gram 24 carats gold during that year and vice versa.

Thus, we can observe that an individual earning Rs.8 lakhs in 2020 is equivalent to one earning Rs.72,352 in 2000, and one earning Rs.1,040 in 1964
#Budget

20. because in each case such individual can purchase 164.4365 gms of 24 carat gold with their income. But when we compare the income tax payable by such individuals at the rates applicable during their year of income, we observe that while in 1964, such

#UnionBudget2022

21. individual was liable to pay tax equivalent to the value of 4.9328 grams of gold (if the individual concerned was an unmarried individual) or NIL (if the individual is married), in the year 2000, the tax payable by an individual of exactly same socio-economic status was

22. equivalent to the value of 7.8873 grams of gold and in the year 2020 it is equivalent to 14.9021 grams. Thus, a #middleclass married individual earning Rs.8 lakhs per annum during 2020 has to pay income tax substantially more than an individual of similar socio-economic

23. standing as his/her who lived 20 years ago. Moreover, if I go back 36 years further in time, during 1964, an individual of same socio-economic standard as our married individual earning Rs.8 lakhs in 2020 was not liable to income tax at all. Similarly,

#UnionBudget2022

24. an individual earning Rs.40 lakhs in 2020 is equivalent to one earning Rs.3,61,760 in 2000, and one earning Rs.5,200 in 1964 because in each case such individual can purchase 822.1825 gms of 24 carat gold with their income. Now,

25. we compare the #incometax payable (in terms of weight of gold in grams purchasable with such tax sum) by individuals of different times each of whom had annual income equivalent to equal weight (150 grams, 300 grams, 3000 grams and 10000 grams)

26.
of 24 carat gold (during the year of his/her income) for the years 1964, 2000 and 2020. Thus the following table 👇Now, as per our definition given before, 2nd, 3rd & 4th rows of d table represent the "Indian middle class" whereas the last two rows represent the rich.

27. Thus, effective increase percentage of #incometax (in terms of value in gms of gold at the rates of corresponding time) for different categories of earners over time are:

28. Thus, #incometax payable by "Indian #middleclass" increased manyfold over almost the last 6 decades when compared with the increase in income tax liability of the rich people. Thus, the grievances of the Indian middle class appears to be totally justified.

29. Now a very confusing question. If actually the Indian middle class represent the individuals earning between Rs.8 lakhs and Rs.40 lakhs per annum, then almost all of them should have been liable to pay income tax. Now that we have already considered the #middleclass to be

30.
those 40% of the earning population who earn above the bottom 50% of the earning population but below the top 10%. Thus, had all of these 40% added to the top 10% of the earning population been #incometax payers, the number of individual income tax payers should have been

31.
at least 50% of the earning population of India. But in reality, we observe that even less than 2% of the Indian population actually pays #incometax. Herein below, will try to solve this riddle and to find a satisfactory reason behind this apparent anomaly before concluding

32. Firstly, we must consider that not the whole Indian population are earners. We must eliminate minor population as well as a majority of the elderly people as non-earners. As total population of India in 2002 was only 109.33 crores, compared to that in 2020 at 138 crores, the

33. increase during these 18 years, that is 28.67 crores must be through births during this period. Apart from this, considering that the average number of deaths during this period was approximately a crore per year (death rate being round about 8 per thousand each year),

34. another 18 crores of Indian population must be aged below 18. Thus, the adult population of India in 2020 was at most 92 crores. Furthermore, the #worldbank data suggests that the total Indian workforce in 2020 was about 47.17 crores only, which is barely 34.18% of the total

35. population of India. Again, out of this workforce, about 60% works in d agricultural sector which is exempted from #incometax liability as per existing law in force. Hence, only 40% of 34.18%, that is 13.67% of Indian population at all are workers in non-agricultural sector.

36. Again, because 83% of such workers are engaged in informal sector, hence only 17% of this 13.67% of Indian population works in the non-agricultural organised sector, mostly as salaried individuals.

This particular class of salaried people working in organised

37. non-agricultural sector in India thus constitutes only 17% of 13.67%, that is 2.32% of the total population of India. They are the people, who, if they have salary income above the #incometax exemption limits, have almost no way (except only very limited situations where some

38. companies try to compensate their employees by issue of certain purchase coupons etc. which neither the company nor the employee treat as an income of the employee, thus avoiding income tax payable by the salaried employee) of avoiding #incometax.

Next, would try to

39. estimate as to what percentage of salary earners actually pay #incometax. Now, from the "Income Tax Return Statistics" for AY 2017-18, Table 1.2, we observe that 2,32,98,826 returns were filed showing positive salary income. Hence we can easily infer that about 2.33 crores of

40. salary earners had filed income tax return that year, which is actually 1.74% of the then Total Indian population (standing at 133.87 crores in 2017). Out of these 2.33 crores salary earners who filed #IncomeTaxReturn, 1.92 crores have declared their income above the general

41. exemption limit of Rs.2.5 lakhs, and 1.13 crores ( which is 0.84% of the then Total Indian population) went further to declare their income above Rs.5 lakhs, thus being #incometax payers in reality. Thus, at least among the salary earners (2.33% of total population),

42. the percentage of population actually paying #incometax (0.84% of total population) is 0.84/2.33, that is more than 36% which is again 0.84/1.74, that is more than 48% of return filers having salary income. This means, an estimated 36% of the total salary earners of India

43. admits to have income above Rs.5 lakhs per annum.

Hence, though the percentage of total population of India actually paying #incometax, thus admitting their income to be above the liability limit of Rs.5 lakhs is even less than 2%, but an estimated 36% of the total salary

44. earning population of India has to admit it. This, thus solves the riddle as stated before and we reach to the conclusion that though actually nearly or may even be slightly more than 50% of Indian earning population have gross income above the taxable limit of Rs.5 lakhs,

45. but most of them either are not liable to pay #incometax (having income from agro sector) or do evade income tax by understating their income. Only d salaried individuals being compelled to declare d maximum part of their income, r perhaps forced to pay legitimate income tax,

46. thus making nearly 36% of them to be #incometax payers in reality.

So, as an outcome of the existing taxation laws of India, d #middleclass people, particularly d salaried middle class, being the soft target of all the ruling dispensations of all the governments in India,

47. remain the most extorted class of the society since independence and the level of their #deprivation and #extortion increased year after year. Though they are treated to be rich people while taxing and are deprived of all the social benefits offered by the Governments for the

48. poor but as a ground reality they too often fails to meet their ends just like the poor.

This injustice to the salaried middle class needs to be mended. @nsitharamanoffc Such demands can be put only in front of a nationalist Government.