Ahead of Budget 2025, there has been growing anticipation regarding potential reforms in the income tax structure, notably the discussion surrounding the introduction of inflation-adjusted basic exemption by tweaking the income tax slabs. Experts believe the government should adjust the tax slabs and also increase the limit of standard deduction and other exemptions, providing much-needed relief amid rising inflation.
Finfluencer A K Mandhan, in a post on social media X, noted if your salary has not increased by more than 10% since 2024, you are technically earning less from before.
Giving a calculation of his claim, Mandhan showed that if the base salary in 2024 is Rs 15,00,000. After a 10% hike, the new salary becomes 16,50,000. Upon applying a 30% tax on the hike amount of Rs 1,50,000, the tax deduction amounts to Rs 45,000, resulting in a net hike of Rs 1,05,000.
With an inflation rate of 7%, the inflation loss on the new salary of Rs 16,50,000 totals Rs 1,12,500.
Therefore, the actual hike is calculated by subtracting the inflation loss from the hike: Rs 1,05,000 – Rs 1,12,500 = – Rs 7,500 (negative Rs 7,500).
Inflation and your salary
Following the Covid-19 pandemic, there was a surge in consumption due to pent-up demand. However, the sluggish wage growth has raised concerns about a complete economic recovery to pre-pandemic levels. India’s workforce is grappling with the dual challenge of stagnant pay increases and rising living costs.
In 2024, a report was commissioned by the government and conducted by industry chamber FICCI in collaboration with Quess Corp Ltd, a technology-driven staffing firm serving over 3,000 clients. The report highlighted the compounded annual wage growth rates across six sectors from 2019 to 2023. The findings revealed a range of 0.8 per cent for engineering, manufacturing, process, and infrastructure (EMPI) companies to 5.4 per cent for fast-moving consumer goods (FMCG) firms.
Furthermore, the report indicated a troubling trend for workers in formal sectors, with minimal or negative growth in real incomes. Real incomes refer to wage growth adjusted for price increases or inflation. Over the five-year period from 2019-20 to 2023-24, retail inflation climbed by 4.8 per cent, 6.2 per cent, 5.5 per cent, 6.7 per cent, and 5.4 per cent, respectively.
Chief Economic Advisor V Anantha Nageswaran cited the FICCI-Quess report in several of his speeches at corporate events, emphasizing the need for introspection within the Indian corporate sector. It was suggested that action be taken to address the concerning findings outlined in the report.
At the Bharat @100 Summit hosted by Assocham on December 5, Nageswaran emphasized the importance of achieving a more equitable distribution of income between capital (profits) and workers (wages). He highlighted that corporate profitability reached a 15-year peak in March 2024.
“Without that, there will not be adequate demand in the economy for corporates’ own products to be purchased. In other words, not paying workers, or not hiring workers enough, will end up being actually self-destructive or harmful for the corporate sector itself,” he had said.
He added: “The previous high was 5.2 per cent of GDP, profit after tax, in March 2008. That was a boom era. But to be able to get to 4.8 per cent in 2024 after Covid and in a very difficult global environment… whereas 2008 was an extremely friendlier global growth environment. This means that profitability growth has been absolutely impressive. The growth was 4x in the last four years, four times growth in profits of the Indian corporate sector.”