Why Salaried Employees Face unfair India’s Tax Burden

If you're a salaried employee in India, you’ve probably felt like you’re carrying the weight of the country’s tax system on your shoulders. Every payday, a significant chunk of your income disappears into taxes—leaving little room for savings or investments.

Meanwhile, businesspeople enjoy the luxury of deducting their expenses before calculating taxable income, paying taxes only on what’s left. And that’s just the tip of the iceberg. Stagnant tax exemptions, soaring inflation, and rigid policies have further widened this disparity.

This article delves into the taxation challenges faced by salaried employees, explores the underlying reasons, and suggests reforms for a fairer system.

Why Salaried Employees Are Overburdened

Salaried individuals in India face a unique predicament: they’re taxed at source and are left with limited avenues to reduce their taxable income. Here’s why the system feels skewed against them.

• Rigid Tax Structure: Unlike businesspeople, salaried employees cannot claim everyday expenses like travel, meals, or office-related costs. This rigidity increases their taxable income, leaving them with less disposable cash.
• Stagnant Exemption Limits: The basic exemption limit has remained unchanged for years, despite inflation eating into real income. For instance, the ₹2.5 lakh exemption hasn’t been revised to match today’s cost of living, reducing the purchasing power of salaried individuals.
• Double Taxation Woes: Salaried employees pay income tax and are further taxed on every product or service they purchase through GST. This creates a double taxation scenario, which isn’t the case for business expenses.
• Inflation Outpaces Savings: Rising inflation has eroded the value of tax-saving instruments under Section 80C. The ₹1.5 lakh limit has remained static, offering no relief to taxpayers looking to save.

The Stark Contrast with Business Taxation

Businesspeople in India enjoy significant tax advantages that salaried employees can only dream of. Let’s break down the disparities:

• Expense Deduction Privileges: Business owners can claim deductions for a wide array of expenses—rent, travel, utilities, and even depreciation. These deductions drastically reduce their taxable income, unlike salaried individuals who are taxed on gross income.
• Flexibility in Income Declaration: Entrepreneurs often have the leeway to structure their earnings creatively. This flexibility helps minimize tax liabilities, a luxury salaried employees lack due to strict reporting norms.
• Lower Effective Tax Rates: The effective tax rate for businesses can be much lower after accounting for exemptions and deductions. Salaried employees, on the other hand, end up paying a higher percentage of their income in taxes.
• GST Refund Benefits: Businesses can claim input tax credits on GST, further reducing their financial burden. Salaried individuals bear the brunt of GST without any corresponding relief.

The Case for Tax Reforms in India

To level the playing field and offer relief to salaried employees, India’s tax system needs a comprehensive overhaul. Here’s what can be done:

• Revising Exemption Limits: The basic exemption limit should be increased from ₹2.5 lakh to at least ₹5 lakh, aligning with current inflation rates and cost-of-living standards.
• Expanding Section 80C Benefits: The ₹1.5 lakh cap under Section 80C needs a significant hike. Increasing it to ₹3 lakh would encourage more savings and investments while providing tax relief.
• Introducing Expense-Based Deductions: Salaried individuals should be allowed to deduct specific expenses, such as commuting costs, internet bills for remote work, and children’s education fees, from their taxable income.
• Reducing GST on Essentials: Lowering GST rates on essential goods and services would alleviate the financial strain on salaried employees, who currently face double taxation.

Comparison Table: Salaried Employees vs. Business Taxation

Aspect	Salaried Employees	Businesspeople
Tax Calculation	On gross income	On net income after deductions
Deductible Expenses	Minimal (e.g., standard deduction)	Extensive (travel, rent, utilities)
GST Benefits	None	Input tax credit available
Savings Incentives	Stagnant limits	Flexible investment structures

The Bigger Picture: Why Reforms Matter

1. Boosting Disposable Income; Increased exemptions and deductions for salaried employees would enhance their purchasing power, stimulating economic growth.
2. Encouraging Savings and Investments: By raising savings-related exemptions, the government can foster a culture of long-term financial planning among taxpayers.
3. Creating Fairness in Taxation: Introducing parity between salaried employees and business owners would instill trust and fairness in the tax system.
4. Addressing Inflationary Pressures: Regularly revising exemption limits and tax-saving thresholds would help taxpayers cope with rising inflation.

Key Insights for Salaried Employees

• Understand Your Tax Slabs: Familiarize yourself with tax-saving instruments and plan investments strategically.
• Leverage All Available Deductions: Maximize benefits under existing sections like 80C, 80D (medical insurance), and 80G (donations).
• Advocate for Policy Changes: Collective advocacy for tax reforms can pressure policymakers to address these disparities.
• Track Your Finances: Use tools and apps to monitor expenses and identify potential savings opportunities.

My final thoughts: A Call for Fairness

India’s salaried employees are undeniably the backbone of its economy, contributing significantly to the tax revenue pool. Yet, they’re often left feeling shortchanged by a system that disproportionately favors business taxpayers.

It’s high time for the government to step up and address these inequalities. By revising exemption limits, introducing fairer deductions, and aligning tax policies with modern economic realities, policymakers can provide much-needed relief to millions of salaried workers.