India's Middle Class Expanded Sevenfold, But Salaries Struggled to Keep Pace: What the Data Reveals

For millions of salaried Indians, the feeling that their income has not grown much over the last few years is now backed by official data. Income tax filing records reveal that India’s formal middle class has expanded dramatically over the past decade, but the average salary of people within this group has barely increased. The latest analysis of Income Tax Return Statistics for FY13 and FY23 highlights a major transformation in India’s economy — more people are entering the formal tax-paying workforce, but salary growth for existing workers has remained limited.

While India’s nominal GDP grew at an annual rate of around 10.5% during the decade, total salary income reported by individuals increased at a much faster pace of nearly 16% annually. However, the average salary of individual taxpayers grew by only about 6.5% per year, showing that much of the increase came from a larger number of earners rather than significant income growth for existing taxpayers.

A closer look at the numbers shows that India’s middle-income group has become the biggest beneficiary of economic formalisation. When the middle class is defined as individuals earning between ₹10 lakh and ₹50 lakh annually in salary income, the size of this group has expanded sharply. Its contribution to total salary income increased from just over one-fourth in FY13 to nearly half by FY23.

A decade ago, people earning below ₹10 lakh annually accounted for nearly two-thirds of total salary income. Over time, many workers moved into higher income categories, reducing the dominance of the lower-income segment. The rise of the middle class is mainly a story of expansion rather than higher earnings. The number of taxpayers in the ₹10 lakh to ₹50 lakh salary bracket increased nearly seven times during the decade, but the average salary within this group remained almost unchanged.

The average salary for this category increased only slightly from ₹16.86 lakh in FY13 to ₹17.33 lakh in FY23. This means that despite the sharp increase in the number of people entering the middle-class income group, individual salary growth remained extremely weak. After adjusting for inflation and taxes, the actual improvement in purchasing power becomes even smaller. The rapid growth of this segment can largely be linked to two factors — upward movement of workers from lower salary brackets and the expansion of formal-sector employment. As more businesses moved into the organised economy and more workers entered payroll-based jobs, the number of salaried taxpayers increased significantly.

This formalisation is a positive development because a larger middle class usually supports economic growth through higher consumption, investment, and demand for goods and services. However, the data also points to a challenge: workers have not gained enough bargaining power to push wages higher despite the growth of formal employment.

The tax records also challenge the common perception that high-income earners have become significantly richer through salary growth. Individuals earning above ₹50 lakh annually actually saw their average salary income decline by around 10% over the decade. This happened because the number of taxpayers in the highest income group increased rapidly, while total salary income did not rise at the same pace. As more people entered this category, the average income per person fell. Similar trends were visible in other income sources, where the overall pool expanded but average earnings did not necessarily increase.

One of the most surprising findings from the data is the performance of the lowest salary-income group. Individuals earning below ₹10 lakh annually recorded the strongest average salary growth among the three categories. Their average salary increased from ₹3.87 lakh in FY13 to ₹5.10 lakh in FY23, representing a growth of around 32% over the decade. Although the increase was not enough to eliminate financial pressures, it was higher compared with the middle-income and high-income groups.

The broader picture emerging from the tax data is that India’s income growth story is largely being driven by expansion in the number of formal workers rather than rapid salary increases for individuals. The country is creating more salaried jobs, bringing more people into the tax system, and expanding the middle class. But for long-term economic growth, the next challenge will be ensuring stronger wage growth.

If salaries fail to rise meaningfully, consumer spending could eventually slow down. Since household consumption is a major driver of India’s economy, weak wage growth could affect business growth, investment, and job creation. For India’s middle class, improving earning potential will depend heavily on skills, productivity, and career mobility. Workers may need to continuously upgrade their skills, explore better opportunities, and adapt to changing job markets to achieve stronger income growth. India’s middle class has undoubtedly grown in size, but the next phase of economic progress will depend on turning that expansion into better salaries, stronger purchasing power, and greater financial security for ordinary workers.