Every budget season, the word “progressive” gets thrown around as if it’s a badge of honour. India claims to follow a progressive tax system, one where those who earn more contribute more. In theory, that sounds fair. In practice, it is worth asking: progressive in structure, or progressive in effect?
The idea behind progressive taxation is simple. It is based on the “ability to pay” principle i.e. higher income, higher rate of tax. India’s income tax slabs reflect this logic. As income rises, the marginal tax rate increases. On paper, that looks like textbook progressivity.
But income tax tells only half the story.
A large portion of India’s tax revenue comes from indirect taxes, particularly GST. Unlike income tax, GST does not ask how much you earn before taxing what you spend. When two individuals buy the same product, they pay the same rate of tax, regardless of whether one earns ₹20,000 a month and the other earns ₹20 lakh. That uniformity raises an uncomfortable question: does a system heavily dependent on consumption taxes really achieve distributive fairness?
The introduction of GST through the 101st Constitutional Amendment was undoubtedly a major reform. It streamlined a complicated indirect tax structure and strengthened cooperative federalism through the GST Council. Compliance improved, and the tax base widened. Yet, by increasing reliance on indirect taxation, the system may have shifted the burden quietly toward consumers including those with limited purchasing power.
Another aspect that complicates the narrative is corporate taxation. In recent years, corporate tax rates were reduced to encourage investment and economic growth. The move was justified as a strategy to boost competitiveness and attract capital. Economically, it may have made sense. But from a distributive justice perspective, it raises a tension: can a system reduce taxes for corporations while claiming stronger redistributive intent?
There is also the issue of the narrow direct tax base. A relatively small percentage of the population pays income tax. When the majority of revenue is collected indirectly, the redistributive strength of progressive slabs becomes limited in practice.
None of this means India’s tax system is regressive. It clearly contains progressive elements. Higher income groups do face higher marginal rates. Surcharges and cess add to the burden at the top end. Social welfare schemes are funded through tax collections. The framework is not indifferent to equity.
But progressiveness cannot be measured by slab rates alone. It must be assessed by looking at the entire tax structure and its real impact across income groups. A system may appear progressive in design yet operate differently in effect.
So, is India moving toward a truly progressive tax regime? Perhaps. But the journey is incomplete. Until the balance between direct and indirect taxation is more carefully calibrated, the claim of full progressivity will remain open to debate.
And maybe that debate is exactly what a democracy should be having.
References
1. Constitution (One Hundred and First Amendment) Act, 2016.
2. Income-tax Act, 1961.
3. Central Board of Direct Taxes, Annual Report(2024-2025).
4. Goods and Services Tax Council, Official Reports and Press Releases.
5. Ministry of Finance, Union Budget Documents(2024-2025).
6. NITI Aayog, Reports on Fiscal Policy and Inequality.
7. World Bank, World Development Indicators(for inequality and tax data).
8. International Monetary Fund, Reports on Tax Policy and Fiscal Progressivity.
9. Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613
10. Union of India v. Azao Andolan (2004) 10 SCC 1
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