Have you ever wondered why Indians pay higher taxes than Americans? It’s a question that often sparks curiosity and raises eyebrows. In this blog post, we will delve into the reasons behind this disparity and shed light on the reality of the situation. You may have come across the YouTube video titled “Why Indians Pay Higher Taxes than Americans?” which provides some insights. We will further analyze and expand on the key points discussed in the video to help you understand the factors contributing to this discrepancy.
Taxation in India:
In India, only 2-5% of the population pays income tax. You might wonder why such a low percentage pays taxes. Well, there are several factors at play. Firstly, the income threshold for taxable income in India is set relatively high, which exempts a significant portion of the population from paying taxes. This means that individuals with lower incomes may not be subject to income tax. Additionally, many small businesses and individuals in India operate on a cash basis, making it easier to evade taxes. Furthermore, a considerable portion of the Indian population falls below the income bracket that requires them to pay income taxes.
Taxation in the United States:
In contrast, approximately 80% of the U.S. population pays taxes. The U.S. tax system has different income brackets, and individuals earning below a certain threshold are exempt from paying income taxes. This means that a larger percentage of the population falls within the taxable income bracket. Moreover, the average income in the U.S. is significantly higher than in India, which leads to a higher proportion of the population being subject to income taxes.
Higher Earning Potential for Indians in the U.S.:
One crucial factor contributing to Indians paying higher taxes in the U.S. is the higher earning potential for skilled Indian professionals. If you’re an Indian working in the U.S., you might be aware of the opportunities available and the emphasis on education and skills. Many Indians pursue advanced degrees and secure high-paying jobs, particularly in fields like engineering, medicine, and technology. In fact, Silicon Valley has a substantial Indian presence, with Indians holding a significant percentage of engineering positions and running numerous startups. The higher average salaries of Indians in the U.S. translate to increased tax liabilities.
Differences in Tax Structures:
The video also touches on the disparity between taxes paid by salaried employees and those paid by business owners. You might be wondering why there’s a difference. Business owners, including CEOs and entrepreneurs, often have more flexibility in managing their income and expenses, allowing them to optimize their tax liability. They can take advantage of pass-through taxation and various deductions available to businesses, which provide avenues for reducing their tax burdens. Conversely, salaried employees, including most Indians working in the U.S., have limited options to minimize their taxes. As a salaried employee, you may not have the same opportunities for deductions and tax planning that business owners enjoy.
Visa Restrictions and Long Green Card Backlogs:
If you’re an Indian working in the U.S., you may be familiar with the challenges posed by visa restrictions and the long green card backlogs. Many Indians in the U.S. are on H-1B visas, which come with certain restrictions and limitations. These visa holders face challenges in terms of job security and creating businesses, making it harder for them to take advantage of tax-saving strategies available to business owners. Additionally, the significant backlog of green card applications for Indians further prolongs their tax bracket, as they await permanent residency and the associated tax benefits.
So, now you understand why Indians in the U.S. pay higher taxes than Americans. It’s important to consider the underlying factors such as tax structures, earning potential, visa restrictions, and the Indian tax system itself when comparing taxation between the two countries. Each country has its unique tax policies and socio-economic dynamics that influence the tax burdens borne by its citizens. As an Indian in the U.S., you may find yourself in a position where you have a higher tax liability due to factors beyond your control. However, it’s important to consult with tax professionals or authorities for accurate and up-to-date information as tax regulations and systems may vary and change over time.