Where is my tax contribution to the government spent?
The tax system in India is quite simplified and well structured. According to the Constitution, the Central Government is responsible for levying taxes like income tax, wealth tax, customs duties, and service tax, while the State Government imposes taxes like entertainment tax, sales tax, stamp duties, and land revenue tax.
For every rupee the government gets, 68 paise comes from direct and indirect taxes. The gross tax revenue of India for 2018-19 (FY19) was around ₹20.8 lakh crore. Have you ever wondered, though, how the government spends your tax money? We will tell you that and more below!
How government spends the money that you pay as tax
Payment of Interest: The Central government spends the lion's share, almost one-fifth of its total expenditure towards payment of interest every year. When the government takes a loan, it has to pay interest on such credit. According to the Budget 2019, the government will allocate 18 paise for every rupee it earned through taxes to payment of interest. So, the government spends your tax money on payment of interest.
Defense Allocation: Your money also helps pay for the country's defense and security-related expenditure. India is one of the world’s largest importers of weapons. In FY 2019, the Union Government has kept defense allocation at 9 paise for every rupee it spends. So, taxpayers’ money helps the country to strengthen its defense mechanism and security.
Government And Welfare Schemes: The government spends your tax money on various schemes, including healthcare, education, social security, and others, which claim about 22% of the government expenditure. The Central Sponsored Schemes (CSS), which are implemented by the state but funded by the Centre, account for 9 percent of the total government expenditure while the Central schemes take away 13 percent of the total spends.
Subsidies: The government offers assistance programs to people in the form of subsidies, like food, fertilizer, and LPG subsidies. Your money helps in that too. Subsidies make up a great deal of the government’s total expenditure as the Centre spends around 8 percent of its expenditure on them.
Pension: Another major outlay is for Pension - which accounts for 5 percent of the government expenditure. Your income taxes help the government cover pensions and medical aid for senior citizens and other beneficiaries.
Others: Also, the government is pegged to spend around 7 percent of its expenditure on the Finance Commissions and other transfers while other miscellaneous expenditure constitutes 8 percent of the Centre's total spend.
While only 2 percent of India’s population pays income tax, it is still the primary source of revenue for the government. The taxes you pay are essential to keep the country running. So there you have it, now you know exactly where your tax money goes.