Given the comfortable revenue position of the government, it was expected that Budget 2024-25 would give the middle class some income tax relief. Finance Minister Nirmala Sitharaman, by making changes in various tax slabs, has only given a maximum relief of Rs 17,500 to all taxpayers.
If we assume that 2 crore taxpayers fall under the new income tax regime—for whom this change is proposed—the resulting implication on the Budget would be nearly Rs 35,000 crore. But the tax benefits of people with an income of more than Rs 10 lakh, especially the upper-middle class, have also been limited to Rs 17,500. These specific taxpayers are therefore complaining that the middle class was largely ignored in the budget.
But this complaint needs some fact-checking. Has the finance minister truly ignored the middle class in Budget 2024-25? First, it must be understood what the middle class actually is. Different agencies in India define the middle class in different ways.
Understanding the Indian middle class
National Council for Applied Economic Research (NCAER) classifies households earning between Rs 2 and Rs 10 lakh as the middle class. It divides the middle class into three categories: the lower-middle class, which includes households earning between Rs 2 and Rs 5 lakh; the middle class, which includes households earning between Rs 5 and Rs 10 lakh, and the upper-middle class, which includes households earning between Rs 10 and Rs 20 lakh.
The Reserve Bank of India (RBI) classifies households earning between Rs 3.5 lakh and Rs 17.5 lakh as the middle class. The Government of India includes households with an income of less than Rs 8 lakh in the economically weaker classes.
According to the Income Tax Department, a total of 7.4 crore people filed income tax returns in 2022-23, but only 2.24 crore people actually paid the tax. Of these, 5.82 crore people declared an income of up to Rs 10 lakh, which is about 78 per cent of the total number. So, it is logical for the finance minister to give income tax concessions only to those with an income of less than Rs 10 lakh.
The budget is not limited to tax or income tax, so one must take a detailed look at other ways in which it benefits the middle class and other sections of society. For instance, there has been a practice of assessing the budget in terms of the benefits given to women, called gender budgeting. Along the same lines, we can assess Budget 2024-25 in terms of benefits accrued to the middle class.
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How Budget 2024-25 benefits middle class
First, the middle class today is most worried about youth employment. Accordingly, the government has allocated Rs 2 lakh crore for skill development and employment generation among the youth. The finance minister has announced that the government will provide a one-month wage of up to Rs 15,000 to all persons entering the workforce in the organised sector. This provision is likely to benefit 2.1 crore people.
Apart from this, the government will provide a reimbursement of up to Rs 3,000 per month to employers toward their contribution to the Employees’ Provident Fund Organisation (EPFO). This provision will apply to each additional employee, covering two years.
The ‘internship scheme’ will offer opportunities to 1 crore youth in 500 top companies in five years. Under this, every intern will be paid Rs 5,000 per month and a one-time benefit of Rs 6,000. This scheme can play a big role in skilling the youth and making them employable.
Other schemes benefitting middle-class youth have also been announced in the Budget, including one to skill 20 lakh youth in five years. The unemployed youth in crores of middle-class households have a lot to gain from these schemes.
Second, the government has announced the Pradhan Mantri Surya Muft Bijli Yojana, under which 1 crore households will get free electricity for up to 300 units every month if they install solar panels on their rooftops. This scheme will be available to poor and middle-class families. Loans will be disbursed to buy solar panels, along with subsidies. So, the beneficiaries will not have to bear the cost of installing solar panels.
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Indirect benefits
Third, the government has announced a capital expenditure of Rs 11,11,111 crore in this year’s budget, which will help build infrastructure including road, rail, water, and air transport in the country. This will not only make transportation and life easier for the middle class but also create employment opportunities and reduce logistics costs, which can make goods and services cheaper in the country.
Fourth, out of 3 crore houses promised under PM Aawas Yojna, one crore will be in urban areas, which will benefit the lower-middle class.
Fifth, the government has abolished the angel tax to promote start-ups, which will also benefit middle-class youth.
Sixth, the reduction in import duties may also benefit the middle class indirectly as they will get cheaper goods.
Seventh, the government has provided a corpus of Rs 1 lakh crore, from which interest-free loans will be provided for research and innovation in the next few years. The loans can be paid back over 50 years.
As seen above, various provisions made in the Budget have a positive impact on the middle class directly or indirectly. So, one must not assess the benefits received by the middle class from the Budget based on tax exemption alone—other provisions must also be taken into account.
In the interest of social justice, the government collects more tax from the rich and spends it on welfare schemes. Inequalities in society promote animosity, which can disturb the social fabric and hinder development. So, it is important to uplift economically less privileged sections of society, not only for social justice but also for all-round development.
Unless all sections of the country are included in the ambit of development, India can never become a developed nation.
Ashwani Mahajan is a professor at PGDAV College, University of Delhi. He tweets @ashwani_mahajan. Views are personal.
(Edited by Prasanna Bachchhav)