The size of India’s middle class varies from 24 million to 300 million, according to various estimates. The average tax payer in this country considers herself middle class. However, this could very well be a case of bad classification.
Anybody who pays income tax falls in the 94.2 percentile of India’s income distribution, or the top 5.8% of income earners. Leave aside the top 0.5%, which pays tax in the 30% bracket, even the others can be classified as rich relative to the rest of the nation. Not only are they the major beneficiaries of subsidies meant for the poor, they are also the key recipients of tax sops.
Any tax savings incentives that are announced in the budget will benefit “not the middle class, not the upper middle class but the super-rich who represent the top 1-2% of the Indian income distribution,” says the Economic Survey 2015-16.
For example, the average size of the investment in tax-free bonds by individuals was nearly ₹ 6 lakh in fiscal 2013-14, which was six times the total exemption limit under Section 80C. This is also nearly the same as the average income of the 5.4 million taxpayers in the 20% tax bracket. Similarly, even the benefits on housing schemes are likely to go to the top income earners.
While in most countries, the beneficiaries of tax incentives range from middle class to very rich, in India, they are the super-rich.
