Impact of Taxation on Indian Middle-Class Households: A Study Navigating Through the Struggles Due to Consistent Increase in GST

Executive summary

Since the Goods and Services Tax (GST) replaced India's tangle of central and state levies on 1 July 2017, it has been praised for creating "one nation, one tax." This paper argues that the reform's gains have been unevenly shared: the same design that simplified compliance for businesses also, over time, widened the tax net across the everyday essentials on which middle-class families spend most of their income. The central claim is deliberately narrow and testable, that GST as applied to essentials between 2017 and 2025 has weighed proportionately more on middle- and lower-income households than on the rich, and that the right fix is not to scrap GST but to bolt on a targeted, refundable rebate for households below a defined income line. The argument rests on independent estimates of who actually bears GST (Oxfam India, 2023), the documented 2022 extension of GST to pre-packaged staples and hospital rooms (Daily Excelsior, 2022), and the relief mechanisms already used by Singapore and Canada.

Introduction: a simpler tax, an unevenly shared burden

GST folded a thicket of excise duties, service tax, VAT and octroi into a single, nationwide system. For firms, that was a genuine simplification. For households, the story is more complicated. India's middle class is large and consumption-heavy: the PRICE ICE 360 survey defines it as households earning roughly ₹5 lakh to ₹30 lakh a year and estimates that about 432 million Indians, close to one in three, belonged to it in 2021, split into "seekers" (₹5 to 15 lakh) and "strivers" (₹15 to 30 lakh) (PRICE ICE 360, 2021). Because these families spend a high share of income on food, health, education and transport, any tax that reaches into those categories touches them directly.

That is precisely what happened. GST did not stand still after 2017. In a change that landed hardest on ordinary shoppers, from 18 July 2022 the government levied 5% GST on pre-packed and labelled staples such as atta, paneer and curd, and on hospital rooms renting above ₹5,000 a day (Daily Excelsior, 2022). Items that had effectively been outside the tax net were pulled into it. The thesis of this paper is that this drift, expanding coverage of essentials, is where GST has quietly strained the middle class, and that the remedy is a specific relief mechanism rather than a slogan.

Who counts as "middle class," and why incidence matters

Two ideas do the analytical work here. The first is tax incidence: who ultimately pays a tax, as opposed to who legally remits it. GST is collected from sellers but passed forward into prices, so the real burden falls on the final consumer. The second is regressivity: a tax is regressive when lower-income households pay a larger share of their income than richer ones. Indirect taxes on essentials tend to be regressive because a poor family and a rich family buy similar quantities of basic goods, but that spending is a much bigger slice of the poor family's income.

Using the PRICE definition rather than an unsourced estimate keeps the analysis honest: the middle class is not a vague label but a measurable band of households, most of whose budget goes to the very categories GST has expanded into. That is the mechanism by which a "simplifying" tax can still bite.

How GST reshaped the cost of essentials

The GST Council has revised rates and coverage repeatedly since 2017. The direction that matters for this paper is the extension of tax to previously untaxed or lightly taxed essentials. The clearest documented example is the July 2022 decision to tax pre-packaged branded food staples and higher-tariff hospital rooms at 5% (Daily Excelsior, 2022). For a family that buys labelled atta, paneer and curd every week, or that needs a hospital stay, these are not luxuries, they are the core of a household budget.

It is important to be careful here about causation. Retail prices rose after 2017 for many reasons, global oil prices, the 2016 demonetisation, monetary policy, and later the COVID-19 shock, so no honest analysis can pin India's post-2017 inflation on GST alone. What can be shown is that GST rates move consumer prices in a measurable way. When the government cut rates in 2025, State Bank of India's research team estimated the reduction would shave roughly 35 basis points off retail (CPI) inflation in 2025-26, with about 25 basis points visible in the September-November 2025 window (SBI Research, via The Tribune, 2025). If cutting rates lowers prices by a measurable amount, then extending coverage and raising rates on essentials raised them, the burden the middle class describes is real, even if the exact size is contested.

An illustrative household: the Sharma family

To make the mechanism concrete, consider an illustrative composite household, not a surveyed family, but a stylised example built to show how the pieces add up. The Sharmas are a "seeker" household near the lower end of the PRICE middle-class band, with most of their monthly spending going to groceries, school fees, transport and the occasional medical bill. As GST reached pre-packaged staples and as service costs rose, a larger share of their fixed budget went to tax-inclusive essentials. Their response is the classic middle-class squeeze: trim discretionary spending first, then reduce saving, then delay big purchases. The point of the example is not to claim a precise rupee figure but to illustrate why a tax on essentials pinches hardest in the middle, households too well-off for welfare support, but too budget-constrained to absorb rising fixed costs.

The evidence beyond one survey: is GST regressive?

An earlier version of this paper leaned on a small survey of about 500 households across five cities, which reported figures such as an 8 to 12% rise in essential spending and 78% of respondents noticing higher expenditure. Those numbers are retained here only as indicative, author-collected impressions from a small, non-representative sample, they have no published sampling frame, response rate or margin of error, and should not be read as statistically representative of India's middle class. The substantive claim of regressivity needs stronger, independent evidence, and it exists.

Oxfam India's 2023 report Survival of the Richest: The India Story estimated that in 2021-22, of the roughly ₹14.83 lakh crore collected in GST, about 64% came from the bottom 50% of the population, 33% from the middle 40%, and only about 3% from the top 10% (Oxfam India, 2023). On that estimate, the poorer half pays several times more of the GST bill, relative to its means, than the richest tenth, a textbook regressive pattern. Intellectual honesty requires flagging that Oxfam's method has been publicly criticised: its indirect-tax split is built from estimated expenditure on selected items rather than from itemised GST receipts, so the exact percentages are disputed. But even critics accept the qualitative point that a flat consumption tax falls more heavily, in income terms, on those lower down the ladder. The regressivity claim, in other words, does not depend on the author's own survey, it is supported by independent work, with its limitations stated.

Macroeconomic implications: what can and cannot be claimed

It is tempting to translate household strain into headline macro numbers, for example, that GST shaved a specific fraction off GDP growth or added a specific amount to inflation each year. This paper deliberately does not make those precise claims, because they cannot be verified from a credible model and would require decomposing GST's effect out of oil prices, demonetisation, monetary policy and the pandemic. Asserting an exact GDP or inflation "cost of GST" would be a false precision.

What can be said responsibly is directional and sourced. First, GST rates demonstrably move consumer prices, as the 2025 rate cut's estimated 35-basis-point drag on CPI shows (SBI Research, 2025). Second, because the middle class accounts for a large share of consumption, sustained pressure on its essential spending is a plausible channel through which tax policy can dampen demand. The argument stands on the incidence evidence and the documented rate history, not on an unmodelled GDP figure.

What others do: Singapore and Canada

Comparisons are useful only when they are fair. Singapore is often cited for its simple, low headline GST, a single rate that rose from 7% to 8% in January 2023 and to 9% in January 2024. But Singapore is a small, unitary city-state with essentially no agricultural sector and a much narrower set of exemptions; India is a federal union of states with a vast farm economy and shared centre-state tax authority. Copying Singapore's rate would therefore be misleading. The transferable lesson is not the rate but the relief design: Singapore pairs its GST with a permanent, targeted GST Voucher scheme that returns cash, healthcare top-ups and utility rebates to lower- and middle-income households, on the explicit principle that a flat GST otherwise benefits the better-off (Government of Singapore, GST Voucher).

For a genuinely apples-to-apples comparison, the better model is another federation: Canada. Canada runs a 5% federal GST alongside provincial sales taxes, and, crucially, it offsets the regressivity with a refundable GST/HST credit: a tax-free payment delivered automatically to individuals and families with low and modest incomes, based simply on their filed tax return, to compensate for the GST they pay (Government of Canada, CRA). Both countries accept that a consumption tax is regressive by design and correct it on the back end with a targeted transfer, rather than by carving endless exemptions into the tax itself. That is the design India is missing.

Policy recommendation: a targeted, refundable GST rebate

The paper's flagship recommendation follows directly from that comparison. Rather than chasing an ever-growing list of exemptions, which complicate the tax and mostly benefit whoever buys the exempted good, rich or poor, India should introduce a quarterly, refundable GST rebate for households below a defined income threshold, modelled on Canada's GST/HST credit and Singapore's GST Voucher. The concrete mechanism:

• Delivery: pay the rebate directly through India's existing Direct Benefit Transfer (DBT) rails, which already move welfare payments into Aadhaar-linked bank accounts, no new institution required.
• Targeting: phase the rebate down across the "seeker" band (₹5 to 15 lakh) so support is largest for households nearest the essentials-spending pinch and tapers to zero for "strivers" and above.
• Indexation: tie the income threshold and rebate amount to inflation so the relief does not silently erode, as Singapore and Canada both adjust their payments over time.
• Transparency: require the GST Council to publish an incidence estimate, who bears the cost, before any rate or coverage change on essentials, so decisions like the July 2022 staple-food levy are debated with distributional data in view.

A rebate is superior to blanket exemptions because it is targeted (the money reaches the intended households rather than every buyer), simple (it keeps the tax base broad and the rate structure clean), and affordable (its cost is visible and controllable, unlike open-ended exemptions).

What GST 2.0 already changed, and what it left undone

Part of this paper's original prescription has, in fact, since been adopted. On 22 September 2025 the government implemented "GST 2.0," collapsing the old four-slab structure into two main rates of 5% and 18% (with a 40% band reserved for luxury and sin goods) and abolishing the 12% and 28% slabs (ClearTax, 2025). This is close to the slab rationalisation the middle-class argument had called for, and early estimates suggest it will modestly lower consumer prices (SBI Research, 2025). That is welcome, and it strengthens, rather than weakens, this paper's remaining point: rationalising slabs eases the average burden, but it does not, on its own, fix regressivity. A flatter GST is still a flat consumption tax. The distributional gap that Oxfam's numbers describe is closed not by moving items between slabs but by the targeted rebate this paper recommends. The reform did the first half of the job; the second half is still open.

Limitations

This paper does not present original representative survey data; the household figures from the author's small five-city survey are illustrative only, and the Sharma family is a composite example. The incidence estimate it relies on (Oxfam, 2023) is itself contested on methodology, and is used here for its direction, not its exact percentages. The paper deliberately avoids precise GDP- or inflation-"cost-of-GST" claims because they cannot be responsibly isolated from other shocks. These limits are the reason the argument is anchored on documented rate history and independent incidence work rather than on the survey alone.

Conclusion

GST was a real modernisation of Indian taxation, and this paper does not argue for undoing it. It argues something more precise: that as GST expanded across essentials, its burden fell disproportionately on the middle- and lower-income households least able to absorb it, and that the mature response, used by both a unitary city-state and a fellow federation, is to keep the tax broad and simple while returning money to those households through a targeted, refundable rebate. GST 2.0 has already simplified the rate structure. The unfinished task is fairness in who ultimately pays. A GST rebate, delivered through infrastructure India already has, is the concrete step that would let "one nation, one tax" also mean one that the middle class can afford.

Sources

1. PRICE ICE 360 survey (ThePrint, 2023), definition of India's middle class as households earning ₹5 to 30 lakh/year; ~432 million people (~one in three) in 2021; "seekers" (₹5 to 15 lakh) and "strivers" (₹15 to 30 lakh).
2. Daily Excelsior (2022), from 18 July 2022, 5% GST on pre-packed/labelled food staples (atta, paneer, curd) and on hospital rooms above ₹5,000/day (GST Council decision, chaired by Union Finance Minister).
3. Oxfam India, Survival of the Richest: The India Story (via The News Minute, 2023), of ~₹14.83 lakh crore GST in 2021-22, ~64% from the bottom 50%, ~33% from the middle 40%, ~3% from the top 10%.
4. SBI Research (via The Tribune, 2025), 2025 GST rate reforms estimated to reduce CPI inflation by ~35 basis points in 2025-26 (~25 bps in Sep-Nov 2025).
5. Government of Singapore, GST Voucher scheme, permanent, targeted scheme returning cash, MediSave top-ups and utility rebates to lower- and middle-income households to offset GST.
6. Government of Canada (Canada Revenue Agency), GST/HST credit, tax-free quarterly refundable payment to low- and modest-income individuals/families to offset GST/HST, delivered automatically via the annual tax return.
7. ClearTax (2025), "GST 2.0" effective 22 September 2025: two main slabs of 5% and 18% (plus a 40% band for luxury/sin goods), with the 12% and 28% slabs abolished, per the 56th GST Council meeting (3 September 2025).