Govt still takes Re1 out of every Rs4

Mumbai
March 3, 2008

Reason: You pay more taxes whenever you buy anything

The great Indian middle class is an abused lot, at least when it comes to paying income tax. The finance minister has been kinder this time around, and by increasing tax-paying slabs has helped decrease taxes and, hence, increase take home salaries.

But even after this a little more than one fourth of every rupee a person earns goes to Union finance minister P Chidambaram’s kitty, in the form of various taxes confirms a study carried out by ABC Consultants Private Limited and DNA.

This is true for a person earning a salary of Rs50,000 a month and supporting a family of four, and living in their own house. The rough tax outflow every month on this income works out to Rs13,096.6, of which income tax is around Rs5,750. The remaining taxes are part of whatever he or she spends. These can vary from indirect taxes (like excise duty ), which are built into the price of any product, to service tax, which needs to be paid on telephone bills, internet, direct to home television etc. Of these other levies, excise duty is the other major tax and amounts to around Rs2,200 a month.

Every spend these days has various taxes built into it. Take the case of FMCG and groceries, a major expense for a middle class family. An expense of Rs4,000 a month would include an excise duty of nearly Rs450, a central sales tax of around Rs60 and value added tax of around Rs390. Since these taxes are built into the price, the person spending is indirectly paying for it.

Also by decreasing taxes, the finance minister is hoping that people spend more and every extra rupee they spend will help the government earn more through the indirect tax route. Increased spending is also likely to benefit corporates in terms of higher revenues, which can mean higher corporate tax collections.

The devil they say always lies in the detail. When it comes to knowing your taxes, it is no different.