0.15 Per Cent of India’s Population Pays 77% of Its Personal Income Tax

A few days before Diwali, the Ministry of Finance released detailed income tax data for the assessment years 2013-2014 and 2014-2015. The income tax returns for the income earned during the financial years 2012-2013 and 2013-2014 were filed during the assessment years 2013-2014 and 2014-2015, respectively.

In late April, earlier this year, the government had released income tax data for the assessment year 2012-2013. We now have data for three years and it makes for an interesting reading. Let’s look at Figure 1.

Figure 1:

 Assessment year Total number of returns filed by individuals Total number of individuals paying income tax 2012-2013 287,66,258 125,18,636 2013-2014 335,85,294 166,47,061 2014-2015 365,13,034 190,97,559

Source: www.incometaxindia.gov.in

The number of individuals filing income tax returns has gone up from around 2.88 crore in assessment year 2012-2013 to around 3.65 crore in assessment year 2014-2015. This is a good jump of close to 27 per cent over a two-year period.

At the same time the number of individuals paying income tax has gone up from 1.25 crore to 1.91 crore, during the two-year period. This is a jump of 52.6 per cent. What this means is that a greater proportion of individuals filing income tax returns is also paying income tax though a large proportion still just files an income tax return without paying any income tax. Let’s look at Figure 2.

Figure 2:

 Assessment year Proportion of individuals filing income tax returns who also pay income tax 2012-2013 43.5% 2013-2014 49.6% 2014-2015 52.3%

During the assessment year 2012-2013 43.5 per cent of individuals filing income tax returns also paid some income tax. This has jumped to 52.3 per cent in assessment year 2014-2015. A greater proportion of those filing income tax also paying income tax is good news.

How do these numbers look with respect to the overall population? Let’s look at Figure 3.

Figure 3:

 Assessment year Total number of returns filed by individuals (in Crore) Population(in Crore)* Proportion of population filing income tax returns 2012-2013 2.88 126.4 2.3% 2013-2014 3.36 127.9 2.6% 2014-2015 3.65 129.5 2.8% * Data sourced from World Bank

As can be seen from Figure 3, there has been some improvement in the proportion of population which files income tax returns. In the assessment year 2012-2013 it had stood at 2.3 percent. Two years later in assessment year 2014-2015, it had jumped to 2.8 per cent.

How about those paying income tax and not just filing income tax returns. Let’s look at Figure 4.

Figure 4:

 Assessment year Total  number of individuals paying income tax (in Crore) Population (in Crore)* Proportion of population paying income tax 2012-2013 1.25 126.4 1.0% 2013-2014 1.66 127.9 1.3% 2014-2015 1.91 129.5 1.5% * Data sourced from World Bank

As can be seen from Figure 4, in assessment year 2012-2013, 1 per cent of the population paid income tax. By assessment year 2014-2015, this had jumped to 1.5 per cent. While this is a substantial improvement, 98.5 per cent of the population still does not pay income tax. This is a reflection both, of our poverty and our scant respect for income tax laws.

There is another interesting trend that comes out of the data. A bulk of individuals who pay income tax, essentially pay an income tax of less than or equal to Rs. 1.5 lakh. Let’s look at Figure 5, which deals with individuals paying an income tax of less than or equal to Rs. 1.5 lakh per year.

Figure 5

 Tax payable less than or equal to Rs 1.5 lakh Assessment year Number of individuals Total tax paid (in Rs. Crore) Average tax paid (in Rs.) 2012-2013 111,28,419 23,446 21,069 2013-2014 150,64.997 37,107 24.631 2014-2015 171,79,474 43,964 25,591

In assessment year 2012-2013, 88.9 per cent of the income taxpayers paid an income tax of less Rs. 1.5 lakh. This had jumped to close to 90 per cent in assessment year 2014-2015. This means the bulk of the income tax paid by individuals is actually paid by a very small number of individuals. Let’s look at Figure 6, which deals with individuals paying an income tax of greater than Rs. 1.5 lakh per year.

Figure 6:

 Tax payable greater than Rs 1.5 lakh Assessment year Number of individuals Tax paid (in Rs. Crore) Average tax paid (in Rs.) 2012-2013 13,90,217 91,109 6,55,358 2013-2014 15,82,064 1,02,393 6,47,211 2014-2015 19,18,085 1,47,244 7,67,661

Now compare Figure 5 with Figure 6 and it is more or less clear that those paying a tax of greater than Rs. 1.5 lakh during the assessment year, even though they are very small in number, pay the bulk of the individual income tax.

In assessment year 2014-2015, around 19.18 lakh individuals paid Rs. 1.47 lakh crore as income tax in total. The total tax paid by individuals during the year was Rs. 1.91 lakh crore. So, a very small number of people paid around 77 per cent of the individual income tax. Let’s look at Figure 7.

Figure 7:

 Assessment Year Total tax paid by individuals Total tax paid by individuals paying more than Rs. 1.5 lakh tax per year Proportion 2012-2013 1,14,555 91,109 79.5% 2013-2014 1,39,500 1,02,393 73.4% 2014-2015 1,91,208 1,47,244 77%

Hence, those paying an income tax of greater than Rs. 1.5 lakh, paid 77 per cent of the income tax paid by individuals during the assessment year 2014-2015. It would be interesting to see what proportion of the population do they make up for. Let’s look at Figure 8.

Figure 8:

 Assessment year Number of individuals who paid an income tax of greater than Rs. 1.5 lakh Population (in Crore) Proportion of population Proportion of income tax paid by individuals 2012-2013 13,90,217 126.4 0.11% 79.5% 2013-2014 15,82,064 127.9 0.12% 73.4% 2014-2015 19,18,085 129.5 0.15% 77%

Hence, in assessment year 2014-2015, 0.15 per cent of the population paid 77 per cent of the income tax paid by individuals. This is a slight improvement over 0.11 per cent of the population paying close to four-fifths of the income tax paid by individuals in assessment year 2012-2013.

This as I said earlier is both because we are a poor country and at the same time have scant respect for income tax laws. At the same time our income tax laws are extremely complicated as well.

The article originally appeared in Vivek Kaul’s Diary on November 2, 2016