THE most interesting data points from the Union Budget 2026-27, hidden in plain sight, are the income tax (I-T) collection numbers. Last year, the government expected to collect about Rs 14.4 lakh crore in ‘taxes on income’. Some, including me, had argued back then that this was an overly optimistic projection, given that the Finance Minister had raised the I-T thresholds and the number of I-T payers would fall sharply because of that. The counterargument given by others was that India’s economy was on the verge of a revival, and that would lead to big salary hikes, and push more people across the income tax threshold.
As it turns out, we were right. The revised estimate for I-T collections for 2025-26 is now just Rs 13.1 lakh crore. That’s about 9 per cent less than what the Budget had estimated. More importantly, I-T collections grew by just 6.2 per cent in this fiscal year, compared to 2024-25. Compare that to the 18.2 per cent and 25.4 per cent growth seen in the previous two financial years. This is especially significant when we compare it to nominal GDP growth. In 2025-26, I-T collections underperformed nominal GDP by 1.8 percentage points. In 2024-25, I-T collections outperformed nominal GDP growth by 8.4 percentage points, and in 2023-24, the growth in I-T collections was a whopping 13.3 percentage points higher than nominal GDP growth.
You don’t need a clearer piece of evidence to show that India’s upper middle class is in deep trouble. Let me break this down a little more. I am going to assume that those with a pre-tax monthly income between Rs 1.5 lakh and Rs 3.5 lakh are ‘upper middle class’. The bulk of these people would be middle managers in the corporate sector, while some would be self-employed professionals. They account for roughly 9 per cent of those who file income tax returns and contribute about 35 per cent of the total I-T collections.
Above them come the affluent, the rich and the super rich. These include senior managers, especially those in the C-suite, top-level lawyers, doctors and other professionals, startup founders and big entrepreneurs. They make up just 1.5 per cent of those who file tax returns, but account for over 50 per cent of the income tax collected by the Centre.
Now, all jobs and recruitment surveys and reports tell us that 2025 has been a great year for top honchos in India Inc, and also for people running startups. This means they must have paid much higher income tax than they did last year. Despite this, if the total income tax collections have increased by just 6.2 per cent, it can only mean that the ‘upper middle class’ taxpayers have paid less tax than in 2024-25. This only adds to what we know anecdotally, that thousands of middle managers in India have lost their jobs, or taken pay cuts to survive.
That we are in the middle of a massive consumption downcycle is also evident from the sluggish growth in GST collections. One reason, of course, is that GST rates have been slashed sharply in the middle of 2025-26. But even if we take just the April-September period and compare it to the previous year, the growth in GST collections was less than 6 per cent. This again, is well below the average 8.8 per cent nominal GDP growth in the first two quarters of 2025-26. So, the tax data confirms what some of us have been saying — India’s upper middle class is not only earning less, it is also spending less than ever before.
On the other side, the same tax data proves that India’s corporate sector is doing extremely well. ‘Corporation tax’ collections beat the budgetary estimates — the government expected to collect Rs 10.8 lakh crore in 2025-26, but is likely to get Rs 11.1 lakh crore instead. That means corporate tax collections increased by 12.3 per cent compared to 2024-25, which is more than 1.5 times the growth in nominal GDP. In other words, corporates are getting a larger share of our national income, while the upper middle class is getting a smaller chunk.
Despite this, the government expects income tax payers to continue to contribute more to the exchequer than the corporate sector. Corporate taxes are projected to account for 28 per cent of the next financial year’s tax revenues, while income tax is estimated to be a little more than 33 per cent. This can only happen if there’s a massive revival in white-collar jobs and salaries in 2026-27. All evidence points to the contrary — AI is likely to cause even more middle manager layoffs this year than 2025.
In fact, if the government expects income tax revenues to rise, it should also expect a revival of middle-class consumption. If that were the case, GST collections should also rise, because the increased volumes would offset the reduction in GST rates. Yet, the budgetary estimate for the next financial year is that GST collections will actually fall by 3 per cent in 2026-27 compared to this fiscal. So, the government’s own indirect tax estimates seem to contradict its income tax projections.
The Budget happens to be a political document. Every incumbent government uses it as a fiscal tool to win elections. The Modi government is no different. Its expenditure is directed towards those who make up the electoral numbers and those who can finance electoral campaigns. Therefore, the poor are going to continue to get subsidised food, some amount of guaranteed work, and financial aid to build homes.
On the other side, India Inc will continue to get tax subsidies and lucrative infrastructure projects — including the new tax sops for building data centres. Government contracts will keep India’s corporate sector insulated from the decline in consumption demand that will be caused by a fall in upper-middle-class incomes.
Meanwhile, the middle class will stay locked up in gated housing complexes and WhatsApp groups. No wonder governments don’t take it seriously.