Are India's Income Tax Slabs Too High or Too Low?

When it comes to evaluating whether India's current income tax slabs are too high or too low, the answer can be quite subjective and varies widely based on the perspective of those involved.

Government's Perspective

From the government's point of view, the current income tax slabs are seen as strategically implemented to ensure that the desired revenue is collected in a just and reasonable manner. By setting the slabs in a particular way, the government aims to create a system that is both fair and effective. The rationale behind this is that the tax slabs should be “just right”, aiming to balance tax collection with social equity.

Private Sector and Political Parties

On the other hand, the private sector, as well as opposition political parties that are not currently in power, argue that the tax slabs are insufficiently favorable. These parties believe that the current slabs are too low and create a discriminatory and unfair burden on the financially stretched individuals and businesses.

The argument from these groups is that further liberalization is needed to ensure that those who are heavily taxed and do not have substantial financial leeway are not burdened further. The opposition parties particularly advocate for changes that would ease the tax burden on individuals and small businesses in the informal sector who do not pay taxes.

Implications for the Middle Class

The middle class, which forms a significant part of India's populous and economic foundation, faces a unique set of challenges with the current tax slabs. Critics argue that the tax slabs are too low, and seemingly neglect the needs of the middle class. They claim that the current provisions do not provide the necessary tax relief, which can be particularly detrimental for families who are financially struggling to make ends meet.

Some middle class individuals and families argue that they are trapped in a system where they are forced to pay disproportionate amounts of tax relative to their income. This can leave them with a limited pool of funds to allocate towards education, healthcare, and other essential needs.

Critics’ Perspective on the Informal Sector

Critics also focus on the informal sector, which includes a large number of small businesses and individuals who operate outside the formal tax system. They argue that the taxes levied by the current slabs are too lenient on these groups, resulting in a skewed tax structure. According to these critics, these individuals and businesses who do not pay taxes are benefiting unfairly from the system. They believe that the tax slabs should be adjusted to ensure that those who benefit from the economy contribute a fair share of taxes.

Conclusion

Considering the various perspectives presented, it is evident that opinions on the current income tax slabs in India are deeply divided. While some view the slabs as insufficient, others see them as just right. The discourse around tax justice and equity remains an ongoing debate, with no absolute conclusion yet reached.

In my personal view, the income tax slabs are far from ideal. They unduly burden a small section of society, particularly the middle class, and fail to achieve the goal of social justice. There is a need for a more equitable distribution of tax liabilities that would ensure that both the wealthy and the less fortunate contribute fairly to the nation's coffers.