Are Indians Overtaxed? Data Shows Why the Answer Isn’t a Simple Yes or No

By Team Nevesh

Ask any salaried employee whether taxes are eating into their income, and chances are the answer will be immediate.

Income tax comes off the salary before it reaches the bank account. Almost every purchase carries GST. Add surcharge, cess and other taxes, and it’s easy to see why many people feel they’re paying more every year.

The numbers, however, tell a more layered story.

India’s top personal income tax rate is not unusually high when compared with many developed economies. At the same time, it is noticeably higher than several Asian countries that compete for investment and skilled professionals. Tax specialists say the bigger issue isn’t the rate itself but the fact that a relatively small group of taxpayers contributes a large share of the country’s direct taxes.

Higher than Asia, but not the West

For individuals in the highest income bracket, the effective tax rate under the new regime rises to nearly 39% after surcharges and cess.

That is lower than in Germany and the UK, where top rates reach 45%, and broadly comparable to several other advanced economies.

The comparison changes when India is placed alongside its Asian peers.

Singapore’s highest personal tax rate is 24%, while Vietnam and Indonesia levy a maximum of 35%. Tax professionals say that gap matters, especially for entrepreneurs, senior executives and global talent deciding where to live or build businesses.

Companies got tax relief. Individuals largely didn’t.

Corporate taxation tells a very different story.

The government’s 2019 tax overhaul reduced the rate for existing companies from 30% to 22%. New manufacturing companies became eligible for an effective tax rate of around 17%, making India far more competitive than it was a few years ago.

Business groups have widely credited those reforms with improving India’s appeal as an investment destination.

No similar structural overhaul has taken place for personal taxation.

While recent Budgets have offered relief to middle-income taxpayers through changes in slabs and rebates, surcharge thresholds for higher earners have remained largely unchanged for years.

Salaried taxpayers now contribute more than companies

One statistic captures how India’s tax landscape has changed.

Personal income tax collections have overtaken corporate tax collections for the first time.

A JM Financial Institutional Securities report shows individuals contributed 53.4% of direct tax collections in FY24, compared with 38.1% a decade earlier. Corporate tax, which once accounted for nearly two-thirds of direct taxes, now contributes less than half.

The shift reflects both lower corporate tax rates and the growing contribution of salaried taxpayers.

Why the burden feels heavier

India’s overall tax collection is not exceptionally high.

The country’s tax-to-GDP ratio stands at 19.6%, lower than Germany and the United States, although higher than several emerging economies.

Economists say the problem lies elsewhere.

A large section of economic activity remains outside the direct tax system, leaving salaried employees and organised businesses to shoulder much of the burden. Since GST applies to most goods and services regardless of income, many taxpayers feel they are paying tax at every stage of spending as well.

That combination helps explain why the perception of being overtaxed persists, even though India’s overall tax levels remain below many developed countries.