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Summary: The popular claim that a tiny minority of salaried Indians bears India’s entire tax burden doesn’t survive a closer look at the numbers. A breakdown of government receipts, GST and household-level taxation shows why the usual 2-3 per cent calculation is misleading.
You have probably seen the post, or one of its hundred cousins: the whole country supposedly runs on the income tax of a few salaried honest souls. This week I sat down with the actual numbers, and they tell a different story.
A few days ago, I came across a post on X that repeated some tired but ever-popular arguments about India’s taxes and taxpayers. It stated that our tax-to-GDP ratio was some 20 per cent and that this entire burden fell on 2-3 per cent of the population who were salaried earners, while businessmen and farmers and the corrupt got a free ride, etc, etc. The post got a lot of likes and a chorus of support from people who obviously thought of themselves as the country’s last few remaining honest taxpayers. I have been hearing and reading versions of this for years, and it’s just wrong.
To prove this argument, people take the entire government budget and then make the completely fictional assumption that this is entirely paid from the personal income tax of individuals. The real numbers are very different: personal income tax is just 21 per cent of central government receipts, corporation tax is 18 per cent, the central share of GST is 15 per cent, excise is 6 per cent, customs is 4 per cent, non-tax revenue is 10 per cent and borrowings are 24 per cent. The states’ take – SGST, liquor excise, stamp duty on property – are all over and above this, as are municipal-level taxes. So that ‘100 per cent of the country runs on personal income tax’ claim turns out to be well below 20 per cent.
When you see this breakup, you will realise that the grievance is actually upside down. GST is paid by anyone who buys anything, from the farmer to the daily wage labourer to the beggar on the pavement who buys a packet of biscuits with a few coins. In fact, fancy phones, big SUVs and destination weddings paid for with shady money are also in the tax net. This is the one place where unaccounted money reliably comes to the surface to be taxed. It takes only common sense (not any knowledge of economics) to see that indirect taxes are regressive and that they take a larger share out of a small income than a large one. Some of the people being described as freeloaders in that thread are surrendering a greater share of what they earn than the salaried who are doing the complaining.
This is as far as actual tax goes, but there is another problem with this viral belief: only 2 or 3 per cent of the country pays income tax. Last year, some nine crore returns were filed, out of which about two-thirds were zero tax, leaving three crore individuals who paid. If you divide that by 140 crore people, you do get about 2 per cent. But a return is filed by an individual and paid out of a household’s earnings. If you think of a standard family of an earning member, a spouse and two children, they eat, travel, buy clothes and pay GST on all of it. The income being taxed supports four people, not one. There are about 30 crore households in India, so the correct denominator for the calculation is not 140 crore Indians but 30 crore households. This leaves us with 10 per cent of households paying income tax. Since personal income tax is 21 per cent of central government receipts and probably about 14 per cent of all government receipts if you add state and local taxes, I see no great injustice being done.
I’m not arguing, even for a moment, that Indians are undertaxed, or that some parts of society are not overtaxed. This discussion is not about those issues. I’m also not arguing, even for a moment, that the money collected is well-spent because so much of it is clearly not. The salaried class's complaint that their share is much more visible and unavoidable than everyone else’s is also fair. Those are all worthwhile points, but they cannot be discussed if most people have a fictional idea of how much tax each person pays. As in so many other areas, from health to AI, social media rhetoric is not a substitute for actually understanding something.
Kautilya, who seems to have thought more carefully about taxation than anyone else in our history, had a perfect analogy for taxation: the way the gardener plucks the ripe fruits, one at a time, from his trees, so should the king from his kingdom. The orchard is expected to survive the harvest and be ready for next year. That is a caution to the state about how much it takes and from whom. It is also a reminder that we are all standing in the same garden, whether or not we happen to file a return.
Also read: Mostly vanity, occasionally the taxman
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