All through last week I wrote on the data put out by the Income Tax department sometime back. This is perhaps the last column based around the data.
Take a look at the following table. I know it’s a very large table, but it’s important to reproduce it here. The table gives the details about individuals who pay income tax in India. This is for the assessment year 2012-2013. The income tax returns for the income earned during 2011-2012 were filed during 2012-2013.
Range
No of returns
Sum of tax payable (in Rs crore)
<0
24
0
= 0
162,47,598
>0 and <=1,50,000
111,28,419
23446
>150,000 and <= 2,00,000
3,02,339
5254
>2,00,000 and <=2,50,000
2,14,437
4790
>2,50,000 and <= 3,50,000
2,64,990
7818
>3,50,000 and <= 4,00,000
86,701
3243
>4,00,000 and <= 4,50,000
69,077
2930
>4,50,000 and <= 5,00,000
58,241
2762
>5,00,000 and <= 5,50,000
48,197
2527
>5,50,000 and <= 9,50,000
1,78,654
12580
>9,50,000 and <= 10,00,000
10,506
1024
>10,00,000 and <=15,00,000
63,876
7746
>15,00,000 and <= 20,00,000
30,016
5171
>20,00,000 and <= 25,00,000
16,795
3740
>25,00,000 and <= 50,00,000
29,881
10229
>50,00,000 and <= 1,00,00,000
11,077
7474
>1,00,00,000 and <=5,00,00,000
5,042
8907
>5,00,00,000 and <=10,00,00,000
266
1788
>10,00,00,000 and <=25,00,00,000
90
1393
>25,00,00,000 and <=50,00,00,000
21
707
>50,00,00,000 and <=100,00,00,000
8
590
>100,00,00,000 and <=500,00,00,000
3
437
Total number of individuals who filed income tax returns
287,66,258
114556
Total number who paid tax
125,18,660
In the assessment year 2012-2013, around 2.88 crore Indians filed income tax returns. Of this nearly 56.4% or 1.62 crore did not pay any income tax. The rest, that is, around 1.25 crore individuals paid income tax.
Of the 1.25 crore who paid income tax, nearly 1.11 crore individuals or 89% paid an income tax of less than Rs 1.5 lakh, for the assessment year 2012-2013. In total, these individuals paid an income tax of Rs 23,446 crore. This works out to an average of Rs 21,069. Of course, the median tax paid would be even lower than this.
Hence, 89% of those who paid tax in India in the assessment year 2012-2013, paid an average income tax of just over Rs 21,000 for the year. This means an average income tax of less than Rs 2,000 per month.
This means around 14 lakh Indians (13.90 lakhs to be precise) actually got around to paying some income tax. They paid around Rs 91,110 crore of income tax in total.
It is safe to say here that the average Indian does not pay income tax. Now let’s compare this to some consumption numbers. Take the case of car sales. In 2011-2012, around 25.34 lakh cars were sold.
What does this tell us? In a country where around 13.90 lakh individuals actually pay some income tax, 25.34 lakh cars are sold during the course of the year. In fact, the number of cars sold has continued to be in the range of 23.4-25.6 lakh cars a year, since then. This basically tells us that many people who are buying cars are not paying any income tax.
This could be because of two reasons. One reason could be that those earning income from agriculture, which is tax free, are buying cars. The other and the more likely reason is that cars are being bought with money on which income tax has not been paid i.e. cars are being bought with black money.
Also, if we look at the income distribution of the salaried individuals paying income tax, around 20.2 lakh people had declared incomes between Rs 5.5 lakh and Rs 9.5 lakh, in the assessment year 2012-2013. But the total number of cars sold during the year stood at greater than 25 lakhs. It is safe to say here that those buying cars are earning at least Rs 5 lakh per annum. The question is, who is buying these cars then?
In short, it is safe to come to the conclusion that a significant portion of the cars are being bought by those who have black money.
The good news is that it shouldn’t be very difficult for income tax authorities to figure out who these people are, given the information technology infrastructure that is available these days. Of course, it may not be feasible for them to go after each and every such individual.
Last week, the Income Tax department released some very interesting data-the kind of stuff that it had not released for a while.
It released detailed numbers for income tax returns filed in assessment year 2012-2013. In the assessment year 2012-2013, the income tax returns for the income earned in 2011-2012 was filed.
Let’s look at the income tax returns of individuals in detail. The Income Tax department has provided data for income for individuals under the head-salary, business income, other income, short-term capital gains, long-term capital gains and interest income.
Take a look at the following table:
This table tells us that the average income of individuals filing an income tax return is around Rs 4.40 lakh.
Table 1: Income under the head (in Rs crore)
Salary
6,27,200
House property income
29,927
Business income
4,03,251
long term capital gain
30,479
short term capital gains
3290
Other sources income
1,28,020
Interest income
44,918
Total (in Rs crore)
12,67,085
Total number of returns
287,66,266
Average income
Rs 4,40,476
How do things look if we look at just the salaried class?
Table 2
Salary (in Rs crore)
6,27,200
Number of returns filed
116,76,493
Average income
Rs 5,37,148
As can be seen from the above table the average income of the salaried class in India filing income tax returns is Rs 5.37 lakh. This is around 22% more than the average income of the individuals filing income tax return.
It is important to understand here that most individuals belonging to the salaried class would have an income lower than the average income of Rs 5.37 lakh. In order to understand this, we will have to take a look at the data in a little more detail.
Let’s divide the data in those earnings up to Rs 10 lakh and those earning more than Rs 10 lakh. Let’s consider those earning up to Rs 10 lakh first (See Table 3). As can be seen from Table 2, the total number of returns filed by the salaried class comes to around 1.17 crore.
Of this close to 1.06 crore have salaried incomes of up to Rs 10 lakh. This means around 91% of the salaried class filing income tax returns have an income of up to Rs 10 lakh. Take a look at the following table (Table 3).
Table 3
Salary range
Number of returns
Sum of Salary Income (in Rs crore)
>0 and <=1,50,000
16,00,167
14,956
>150,000 and <= 2,00,000
10,67,300
18,853
>2,00,000 and <=2,50,000
10,24,315
23,120
>2,50,000 and <= 3,50,000
19,18,714
57,075
>3,50,000 and <= 4,00,000
8,06,685
30,215
>4,00,000 and <= 4,50,000
7,54,202
32048
>4,50,000 and <= 5,00,000
6,96,210
33032
>5,00,000 and <= 5,50,000
5,95,298
31190
>5,50,000 and <= 9,50,000
20,23,583
140464
>9,50,000 and <= 10,00,000
1,00,155
9760
Total
105,86,629
3,90,713
Average Income
Rs 3,69,063
The average income of those earning up to Rs 10 lakh is Rs 3.69 lakh. This is significantly lower than the overall average income of Rs 5.37 lakh of the salaried class filing income tax returns. How do things look for those earning an income of up to Rs 5 lakh?
Table 4
Salary range
Number of returns
Sum of Salary Income (in Rs crore)
>0 and <=1,50,000
16,00,167
14,956
>150,000 and <= 2,00,000
10,67,300
18,853
>2,00,000 and <=2,50,000
10,24,315
23,120
>2,50,000 and <= 3,50,000
19,18,714
57,075
>3,50,000 and <= 4,00,000
8,06,685
30,215
>4,00,000 and <= 4,50,000
7,54,202
32048
>4,50,000 and <= 5,00,000
6,96,210
33032
Total
78,67,593
2,09,299
Average income
Rs 2,66,027
The average income of those earning less than Rs 5 lakh is around Rs 2.66 lakh. These individuals form around two-thirds of the overall salaried class filing income tax returns.
How do things look for those earning more than Rs 10 lakh per year?
Table 5
Salary range
Number of returns
Sum of Salary Income (in Rs crore)
>10,00,000 and <=15,00,000
5,92,418
71,464
>15,00,000 and <= 20,00,000
2,07,141
35,566
>20,00,000 and <= 25,00,000
1,10,700
24,708
>25,00,000 and <= 50,00,000
1,24,472
41,302
>50,00,000 and <= 1,00,00,000
36,775
25,032
>1,00,00,000 and <=5,00,00,000
17,515
30,661
>5,00,00,000 and <=10,00,00,000
655
4,375
>10,00,00,000 and <=25,00,00,000
156
2,158
>25,00,00,000 and <=50,00,00,000
26
809
>50,00,00,000 and <=100,00,00,000
6
412
Total
10,89,864
2,36,487
Average income
21,69,876
The average income of those earning more than Rs 10 lakh per year comes to around Rs 21.7 lakh more and is significantly more than the overall average of Rs 5.37 lakh for the salaried class.
What do these tables tell us? That the average salaried Indian who files income tax returns doesn’t earn much. As mentioned earlier, around 91% of the salaried class has an average income of Rs 3.69 lakh. Close to two-thirds have an average income of Rs 2.66 lakh.
This basically means that the income of the average salaried Indian filing an income tax return is significantly lower than the overall average salaried income as well as overall average income. At least that is how things were for the assessment year 2012-2013.
A question worth asking here is what sort of a home can individual earning a salary of Rs 3.69 lakh per year, actually afford. An annual income of Rs 3.69 lakh translates into a monthly income of around Rs 30,755.
What sort of a home loan would a bank give against this amount? Typically, a bank works with the assumption that 40% of the monthly income can go towards servicing an EMI and accordingly gives a loan.
In this case that amounts to around Rs 12,300. An EMI of Rs 12,300 at an interest rate of 10% and a tenure of 20 years, would service a home loan of Rs 12.75 lakh. Banks typically lend up to 80% of the official value of the property. This means an official value of property of around Rs 16 lakh (Rs 12.75 lakh divided by 80%). Please take into account the fact that I have used the word official because there is bound to be a black component as well.
What this number tells us is that most salaried class in 2011-2012, were not in a position to buy a home to live in, across large parts of the country. There is no reason to believe that things would have changed since then.
The point is that the demand for real estate is in the below Rs 20 lakh market price segment. But what is being built across large parts of the country is clearly above that price. As RBI governor Raghuram Rajan said in a recent speech: “I am also hopeful that prices adjust in a way that encourage people to buy.”
Let’s wait and see if Dr Rajan’s hope becomes a reality, any time soon.