Over the years, as the Union Budget is presented by the Ministry of Finance, Government of India, there has been a growing speculation about the relevance of income tax for taxpayers, mostly middle-class. One major debate circulating is that a new income tax regime should replace the existing one.
While the rationale for the tax regime is being debated, the authors feel that there is a need for an additional defence tax, same as the educational tax, which can be levied on salaried income tax payers as well as the corporate sector to generate additional revenue for the defence forces.
The authors propose a new form of tax on the income tax payer, which can be added to the existing National Defence Fund of the Government of India. The need to impose an additional 2 per cent tax on the income tax payee, in addition to the existing tax structure, stems from the fact that, over the years, the government’s defence budget has increased substantially.
Though the Union Government has announced a defence budget of 7.85 lakh crore for the year 2026, which can be utilised for various defence expenses, including the modernisation of defence forces, as per a Press Information Bureau (PIB) report. It may be underlined here that though the allocation to the defence sector in the Union Budget is considered higher than in the past.
Yet, at the same time, the defence sector requires a higher outlay, as the nature of warfare has changed in recent years, spanning cyberspace, outer space, and conventional warfare.
India can strategise a cohesive approach to waging a multi-front war. To sustain the war, it requires huge financial expenses as well as modernisation of the defence forces. Thus, generating additional revenue through these measures is imperative to augment the defence sector
In addition, the Defence Ministry undertakes a number of measures to enhance the welfare of the armed forces and veterans. Though the Government is initiating substantial measures to modernise the armed forces, improve the service conditions of the armed forces, and implement welfare measures, the participation and contributions of industry and the Middle Class (especially tax payers) are not as substantial as desired.
It is true that income tax is one of the largest sources of revenue for the government, contributing around 21 per cent in the 2026-27 budget year, but there is a need to rethink about other sources of revenue that may generate additional funds beyond the existing contribution from income tax, which constitutes a major source for defence budgeting.
In this background, the authors suggest two major sources of income for defence budgeting. These are, as mentioned above, an additional 2 per cent tax levy on income tax payers, and 2 to 5 per cent of the total profit to be contributed by the industries through their CSR fund.
Though the National Defence Fund is in operation, it mostly operates through volunteer contributions. It is in this context that the above mode of revenue generation will be useful for the defence sector.
An additional 2 per cent of defence tax on the corporate sector can contribute substantially to the national exchequer. In addition, the government should also make provision for the re-employment of Agniveer in the relevant corporate sectors
Rationale for a Defence Tax
Along with revenue generation, which is one of the most important reasons for levying additional taxation, there are a few important considerations one can keep in mind. These are as follows:
- Since the majority of taxpayers come under the middle class or upper middle-class category, levying an additional 2 per cent tax will contribute to the sense of pride for their association with the defence sector. It may be noted that in many countries, such as Israel, compulsory military service is mandatory, but in India, there are no such provisions. In this context, the middle class can at least contribute an additional 2 per cent defence tax.
- The same logic also applies to the corporate sector. As we know, there is a mandatory Corporate Social Responsibility (CSR) requirement: this sector must spend 2 per cent of its total profit on community service. In this context, an additional 2 per cent of defence tax on the corporate sector can contribute substantially to the national exchequer. In addition, the government should also make provision for the re-employment of Agniveer in the relevant corporate sectors.
- As discussed above, the nature of warfare has changed in recent years, both in the global and regional context. For instance, global conflicts like the Russia-Ukraine war or the Iran-US war are impacting the Indian economy deeply. At the same time, India is engaged in a war-like situation against China and Pakistan. The Operation Sindoor conducted last year against Pakistan demonstrates the China-Pakistan nexus which in turn pose a threat to India’s security.
The Ministry of Finance and the Ministry of Defence should work together to bring out a national strategy on levying a 2 per cent tax on taxpayers, as well as 2 to 5 per cent on the corporate sector, which will contribute substantially to the civilian association with the military in India
Similarly, in recent years, the US under the Trump Administration, keeping with its strategic interest, has also been propping-up Pakistan. These strategic quagmires have been shaping the geopolitics of South Asia in recent years.
In this context, India can strategise a cohesive approach to waging a multi-front war. To sustain the war, it requires huge financial expenses as well as modernisation of the defence forces. Thus, generating additional revenue through these measures is imperative to augment the defence sector. One may recall that during the 1962 war against China, people contributed generously to the government to wage the war.
Overall, looking at some of these rationales, both the Ministry of Finance and the Ministry of Defence should work together to bring out a national strategy on levying a 2 per cent tax on taxpayers, as well as 2 to 5 per cent on the corporate sector, which will contribute substantially to the civilian association with the military in India.
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Nalin Kumar Mohapatra and Amitabh Mattoo teach at the School of International Studies, Jawaharlal Nehru University, New Delhi.
Nalin Kumar Mohapatra teach at the School of International Studies, Jawaharlal Nehru University, New Delhi. The views expressed are personal and do not necessarily carry the views of Raksha Anirveda
Amitabh Mattoo teach at the School of International Studies, Jawaharlal Nehru University, New Delhi. The views expressed are personal and do not necessarily carry the views of Raksha Anirveda
