
Who makes up India’s middle class, anyway?
Summary
The government said it tried to allay the concerns of India's middle class, particularly income tax payers, in the Union Budget by announcing massive tax cuts to lift consumption. But do we know who's actually middle class in India?Finance minister Nirmala Sitharaman announced in her Budget speech that one of the government’s efforts was to “enhance the spending power of India’s rising middle class". This was followed by a massive tax bonanza – through changing the tax slabs – for those with an annual income of up to ₹12 lakh and lower tax liabilities for those earning more than that. But do these people actually represent India's middle class?
The problem, not just in India but all over the world, is that there is no specific definition of ‘middle class’. In its simplest and most widely accepted form, about 60% of a population that falls in the middle by income is understood to be the middle class. On top of that, there is no concrete nationally representative data on India’s income levels to help understand the size of the middle class.
A few datasets do indicate where the middle would be, but they have their limitations. Take the latest household consumption expenditure survey, which shows anyone whose monthly per capita consumption is worth ₹2,665- ₹5,242 in rural areas and ₹4,032- ₹9,080 in urban areas is in the middle 60%, data analysed by Mint showed. However, this survey only records consumption, not income. Savings or investments are outside its scope.
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Data from income tax returns are an indication income levels, but only about 7% (80 million) of India’s adult population files returns. This does not account for low-income groups who do not file tax returns or those who are exempt from paying income tax. However, from the data available, the middle 60% are usually a part of the taxable income bracket of ₹3.5-9.5 lakh, according to data for the assessment year 2023-24.
The continuing gap
Gross domestic product (GDP) data is another indicator of India’s per-capita income. Since this is the average and not the median income of each Indian, it may be skewed by extremely high earners and low earners. However, a comparative analysis of per-capita income and the basic tax exemption limit reveals a huge gap between the two.
Between FY20 and FY23, the basic income tax exemption limit (below which one pays no tax) was ₹2.5 lakh but per-capita income was lower than that, growing from ₹1.48 lakh in FY20 to ₹1.92 lakh. In FY26, per-capita income should be about ₹2.46 lakh, while the exemption limit has been raised to ₹4 lakh. Apart from increasing the basic income tax exemption limit, the government has also announced zero tax for those with income up to ₹12 lakh a year, which is nearly five times the per-capita income.
Skewed at the top
The World Inequality Database, which tries to trace income inequality in more than 30 countries through national income accounts, wealth aggregates, and income and consumption surveys, among other things, reveals massive inequality in India. According to their latest data, those with a monthly income of ₹1 lakh or more are in the top 10 percentile. A Mint analysis of percentile data shows the middle 60% would be those earning a between ₹11,856 and ₹38,105 a month. The concentration of income at the top may give people who are in the affluent class the illusion of being middle class.
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Other estimates have a higher income threshold for ‘middle class’. According to a 2022 report by People Research on India’s Consumer Economy (Price), households earning between ₹5-30 lakh a year are middle class. This classification, however, only represents 31% of the population in the report.
Perception vs reality
There is no standard definition of middle class and no concrete data to suggest who's in it, though the available data shows many of those who consider themselves middle class actually aren't. That's becase the feeling of being financially middle class is deeply ingrained across income groups, with 88% of urban Indians identifying themselves as such, according to a YouGov-Mint-CPR Millennial Survey in July 2024. Even 72% of those earning ₹2.5-4 lakh and 59% of those earning ₹4 lakh or more identify as middle class.
Even after the tax cuts announced in the Budget, those who earn more than ₹24 lakh a year ( ₹2 lakh a month) will be in the highest tax slab of 30%. As such, even with the massive tax cuts, discontent among taxpayers may not disappear completely due to the widespread self-perception of being middle class.
Also read: All income groups got a little something from the Budget