The Missing Taxpayer in India's Middle Class

India loses ₹8 lakh crore a year in unpaid income taxes due to exemptions and tax evasion from just the middle class. Instead of forcing evaders to pay taxes, the government is harassing the already compliant taxpayer

- Monika Halan

There is much middle-class angst at the heavy burden it bears on income taxes paid. Other than the dysfunctional nature of government services and a deeply corrupt interface with government agencies, what weighs heavily on the middle-class heart is the fact that so many people remain stubbornly outside the tax net. These people are seen with their wads of untaxed cash even as the taxpayer uses his tax-paid money via a card or UPI. But it is worth examining the question: How much is it that India is missing in unpaid direct taxes on the middle-class individual? I could not find a recent number in an academic study that nails this down, so I have tried some back-of-the-envelope calculations. I find that the amount of tax exempted (agricultural income) and evaded is almost ₹8 lakh crore for 2020-21 by the middle class. This is an annual loss. Just for perspective, the total budget for 2020-21 (tinyurl.com/mparfdr9) was almost ₹27 lakh crore.

But what is the definition of this middle class? Those households with income between ₹5 lakh and ₹30 lakh at 2020-21 prices comprise the middle class, based on a report titled The Rise of India's Middle Class by the People Research on India's Consumer Economy (PRICE). You can see the executive summary of the report at tinyurl.com/2u4a9b7v. The study finds that there are 432 million people in this income band in India.