There can be no argument against giving a consumption boost this Budget (for FY26), even as the first advance estimates of growth for this fiscal point to an element of buoyancy in private final consumption expenditure. This boost seems a tad optimistic, given the mixed trend in lead indicators and the overhang of inflation.

If incomes are indifferent even in the organised sector, as observed by the Chief Economic Advisor recently, it goes beyond saying that India’s 10.4 crore taxpayers need more disposable income. A focus on capital spends alone will not be enough to push the economy beyond a growth rate of 6.5 per cent. The middle class has done the heavylifting on income tax collections in recent years, while the corporates’ share has dipped. Since FY23, personal income tax collections have exceeded corporate collections, with the former being 15 per cent higher than the latter in FY24 and accounting for about 54 per cent of the direct tax collection (₹10.45 lakh crore) of ₹19.6 lakh crore. Personal income tax collections were up nearly 25 per cent in FY24, while corporates’ tax payouts increased 10.4 per cent to ₹9.1 lakh crore. The skew has worsened in the first half of this fiscal, with a 25 per cent growth in personal income tax collections, against 2.3 per cent growth in corporate taxes. Even sections of India Inc, facing a demand squeeze, have argued for personal tax relief.

It is evident from recent data released by the Central Board of Direct Taxes that the tax burden of those in the ₹5.5-9.5 lakh annual income bracket is rather high, as the total tax payable by those in this category exceeds those in higher income brackets. It is worth considering tax reliefs for this quintessentially middle class bracket as well as those below it, given their high marginal propensity to consume. The sharp fall in number of income tax return filers after the ₹1 crore threshold raises questions of undeclared income, which suggests that the doubling of taxpayers between FY15 to FY24 has happened at the lower end. Therefore, efforts must be made to tax the middle class less, raising the zero-rated income slab from the current ₹3 lakh to, say, ₹5 lakh. A reordering of the income slabs may help, wherein there are just, say, two slabs between ₹5 lakh and ₹12 lakh with rates of 5 per cent and 10 per cent. A 30 per cent rate for an income level of above ₹15 lakh needs upward revision to ₹20 lakh.

The standard deduction allowed under the new scheme can be raised substantially from the present ₹75,000 to encourage a shift from the exemptions-based old scheme. However, a surcharge on incomes above ₹50 lakh is not without merits in a country with income disparities. After all, the burden of paying taxes, direct and indirect, cannot rest on the middle class alone. The tax base (about 10 per cent of the working population) must be increased at the top end.