'If salaries are not growing with inflation...': Will Budget 2025 fix India’s middle-class squeeze?

Wisdom Hatch founder Akshat Shrivastava has called for an urgent reevaluation of India’s tax system. In a post on X, Shrivastava argues that as salaries fail to keep pace with inflation, individuals paying direct taxes should receive a much-needed tax break. 

“With no substantial increase in salary, higher taxation leaves people with no discretionary income to spend. Widening the tax base is literally the next critical thing that needs to be done,” he wrote.

India’s economy is heavily reliant on private consumption, which contributes nearly 60% of the GDP. However, rising general taxation, coupled with stagnant wages, has eroded disposable incomes, impacting consumer spending and economic growth. 

In the run-up to Budget 2025, many are asking: will the government act to address this imbalance?

Reports suggest that the government may consider raising the tax-free income ceiling to ₹10-15 lakh under the new tax regime. Currently, income up to ₹7.75 lakh can become tax-free through standard deductions and rebates. While this proposal sounds ambitious, tax experts believe the government may take a more measured approach.

SR Patnaik of Cyril Amarchand Mangaldas, in a ET report, says: “The government may revise tax slabs and increase deductions to ensure effective relief for incomes up to ₹10 lakh without drastically altering the basic exemption limit.” 

Some tax experts have emphasized that such a move could boost disposable incomes but must align with fiscal priorities and revenue concerns.

While expanding the tax base remains a key goal, providing tax relief could drive higher consumer spending and stimulate economic activity. 

Experts argue that middle-class taxpayers, if given more disposable income, would channel funds into consumption, savings, and investments, strengthening the broader economy. However, concerns persist about the potential trade-off between tax relief and government revenue. A higher exemption limit could reduce the number of taxpayers filing returns, which might not align with the objective of broadening the tax base, feel experts.