Who Really Pays Taxes in India?
The focus keyphrase is who pays taxes in India.
In every chai shop or WhatsApp group, someone says, “Only a few people pay tax in India.” That’s partly true—but also misleading. The real answer depends on what kind of taxes we’re talking about.
Let’s break it down.
Understanding India’s Tax System
India has two major types of taxes:
| Type of Tax | Who Pays | Example |
|---|---|---|
| Direct Tax | Individuals, businesses | Income tax, corporate tax |
| Indirect Tax | Everyone who consumes goods | GST, fuel tax, road tax, stamp duty |
Direct Taxes: Paid by the Earning Few
- Only about 8.2 crore individuals filed Income Tax Returns (ITRs) in AY 2023–24 (CBDT data).
- Of these, only around 1.3 crore paid actual income tax after deductions.
- Corporate tax is paid only by profit-making companies.
Expert view: Direct tax burden is progressive—higher income means higher tax. But most Indians earn below the basic exemption limit.
Indirect Taxes: Paid by Everyone
Here’s the catch: Even a daily wager pays GST when they buy a ₹10 biscuit packet.
- GST collections exceed ₹1.7 lakh crore/month (as of 2025).
- Fuel prices include 60%+ tax component (central excise + VAT).
- Buying a house? You’re paying stamp duty and registration charges.
- Toll tax, road cess, service tax on insurance or telecom—these are non-avoidable.
Whether rich or poor, everyone contributes through indirect taxation.
Misconception: “Only 2% of Indians pay tax”
That applies only to income tax, not to GST, customs duty, or excise. This myth overlooks the invisible burden of indirect taxes in daily life.
Who Bears More Tax Burden?
| Category | Share of Tax Burden |
|---|---|
| Low-income citizens | High in indirect taxes |
| Salaried class | High in direct + indirect |
| Corporates | High in corporate tax + GST |
| Informal sector | Low direct tax, high GST |
India’s system shifts a heavier load on consumption rather than income, making it somewhat regressive for the poor.
Case Law Insight
In Chhotey Lal v. State of U.P., the Supreme Court held that levying indirect taxes on essential commodities disproportionately impacts the prompting calls for policy reform.
Government Clarification
According to the Ministry of Finance, tax buoyancy in GST has improved compliance, but the direct tax base still needs widening.
Expert Tip: Tax planning ≠ tax evasion
- Use Section 80C investments
- File returns even below threshold (builds financial profile)
- Take credit for TDS/TCS using Form 26AS
Final Thoughts
So, who pays taxes in India? Everyone does. But only a few bear the income tax load, while indirect taxes hit everyone—especially those who can least afford it.
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FAQ – Who Pays Taxes in India?
Q1. Is it true only 2% of Indians pay tax?
A: That’s true only for income tax. Everyone pays GST and other indirect taxes.
Q2. Why are indirect taxes considered regressive?
A: Because they affect rich and poor equally—a poor person pays the same GST on milk as a rich one.
Q3. What taxes do salaried individuals pay?
A: Income tax, professional tax (in some states), and GST on all purchases.
Q4. Can I avoid indirect tax?
A: Not really. GST is embedded in most purchases and services.
Summary
Who pays taxes in India? Income tax is paid by few, but GST and road tax are paid by all. Here’s a breakdown of India’s real tax burden, direct vs indirect.