💸 The Middle Class Squeeze
- Bracket Creep: Inflation pushes you into higher tax brackets, but your purchasing power stays the same.
- The Real Rate: Middle-class earners pay closer to 30-35% of income when you add GST and Fuel Tax.
- The Deduction Trap: 80C limits haven't increased in a decade, effectively acting as a tax hike every year.
If you live in a metro city in India earning ₹12 Lakhs a year, you are technically "rich" by statistical standards. But you definitely don't feel rich.
Why? Because the Indian tax system is designed in a way that disproportionately squeezes the salaried middle class. You are too rich for government subsidies, but too poor to use the tax loopholes available to corporations.
1. The "Rich" Illusion: Bracket Creep
Here is the silent killer of your wealth: Inflation.
Scenario: You earned ₹8 Lakhs in 2020. You pay 20% tax. Inflation hits. You need ₹10 Lakhs in 2025 just to buy the same groceries and rent.
You get a raise to ₹10 Lakhs. You feel like you're moving up. But the taxman sees a "higher income" and taxes you more. Your real income hasn't changed, but your tax bill went up.
This is called Bracket Creep. While corporate tax rates have been slashed to boost investment, individual tax slabs move much slower than inflation.
2. The Invisible Tax: GST and Fuel
You look at your payslip and see TDS (Tax Deducted at Source). That hurts. But the real pain happens when you spend what's left.
- Buy a car? 28% GST + Cess (Total ~45%).
- Eat at a restaurant? 5% or 18% GST.
- Fill petrol? ~50% of the price is tax.
For a middle-class family, these indirect taxes consume a massive chunk of disposable income. Unlike income tax, which scales with wealth, GST hits everyone. But it hurts the middle class most because they spend a higher percentage of their income on consumption than the ultra-rich.
3. The 80C Trap: Stuck in 2014
Section 80C is the holy grail of tax saving. It lets you deduct ₹1.5 Lakhs from your taxable income for investments (PPF, LIC, etc.).
The Problem: The limit was set at ₹1.5 Lakhs in 2014. It hasn't changed.
Since 2014, inflation has eroded the value of that ₹1.5 Lakhs by nearly 50%. To offer the same benefit today, the limit should be ₹2.5 - ₹3 Lakhs. By keeping it stagnant, the government has effectively increased your tax burden every single year for a decade.
4. The "Tax on Time"
It's not just money; it's time. The compliance burden on the salaried class is immense. Filing ITRs, linking PAN-Aadhaar, tracking 26AS, understanding the New vs. Old Regime—it's a second job.
Meanwhile, the agricultural sector (often wealthy farmers) remains entirely tax-free, and corporate tax rates have been rationalized to be globally competitive. The salaried class is the only group that cannot hide income and has no lobby to fight for it.
The Verdict
The Indian middle class is the engine of the economy, but it is running on fumes. The combination of direct tax, high indirect tax, and stagnant deduction limits creates a "triple whammy."
Until tax brackets are indexed to inflation (automatic adjustments every year), the middle class will continue to get poorer even as their salaries get higher.
