Nation

IIE Digital Desk: The Indian government's recent decision to eliminate indexation benefits for middle-class taxpayers has sparked widespread outrage. Indexation, a method that adjusts income tax calculations based on inflation, has been a key tool for reducing the impact of rising prices on individuals' taxable income. The removal of this benefit is viewed as a significant blow to the middle class, who are now facing higher tax liabilities amid already rising living costs.

Critics argue that this move disproportionately affects the middle class, potentially reducing their purchasing power and increasing financial strain. Many believe that the decision undermines the government's commitment to supporting the economic well-being of its citizens. “The middle class is very angry and upset,” says venture capitalist Mohandas Pai, who’s usually been a strong backer of Prime Minister Narendra Modi’s government.The Modi government's decision to be removed classification benefits has ignited widespread outrage among the middle class."“The threshold rate of return for the new regime to be more beneficial for you, compared to the old regime, is an 11 per cent gain.”  “So, the rises have been barely keeping up with inflation,” he says, adding: “Obviously the new tax regime ends up hitting these hard because they will end up paying dramatically more tax due to the indexation loss.” 

Opposition leaders and economic analysts have condemned the policy change, calling it a regressive step that could exacerbate economic inequality. The outcry reflects broader dissatisfaction with the government's economic policies, as citizens brace for the implications of this new tax structure. As the debate continues, the government faces mounting pressure to address the concerns of the middle class and reconsider the removal of indexation benefits.

That's because what the government's done is removed indexation benefits from long-term capital gains but reduced the tax rate by 37.5 per cent from 20 per cent to 12.5 per cent. The new changes could hurt many investors who have put their faith in real estate and gold.