## What Do Car Sales Tell Us About Black Money?

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.

The column originally appeared in the Vivek Kaul Diary on May 9, 2016

## Here’s More Data to Show How Over-Priced Indian Real Estate Is

I know I am kind of going overboard with the analysis of the data released by the Income Tax department last week, but believe me it is necessary, to show how loaded things are against people who actually pay income tax.

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 rangeNumber of returnsSum of Salary Income (in Rs crore)
>0 and <=1,50,00016,00,16714,956
>150,000 and <= 2,00,00010,67,30018,853
>2,00,000 and <=2,50,00010,24,31523,120
>2,50,000 and <= 3,50,00019,18,71457,075
>3,50,000 and <= 4,00,0008,06,68530,215
>4,00,000 and <= 4,50,0007,54,20232048
>4,50,000 and <= 5,00,0006,96,21033032
>5,00,000 and <= 5,50,0005,95,29831190
>5,50,000 and <= 9,50,00020,23,583140464
>9,50,000 and <= 10,00,0001,00,1559760
Total105,86,6293,90,713
Average IncomeRs 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 rangeNumber of returnsSum of Salary Income (in Rs crore)
>0 and <=1,50,00016,00,16714,956
>150,000 and <= 2,00,00010,67,30018,853
>2,00,000 and <=2,50,00010,24,31523,120
>2,50,000 and <= 3,50,00019,18,71457,075
>3,50,000 and <= 4,00,0008,06,68530,215
>4,00,000 and <= 4,50,0007,54,20232048
>4,50,000 and <= 5,00,0006,96,21033032
Total78,67,5932,09,299
Average incomeRs 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 rangeNumber of returnsSum of Salary Income (in Rs crore)
>10,00,000 and <=15,00,0005,92,41871,464
>15,00,000 and <= 20,00,0002,07,14135,566
>20,00,000 and <= 25,00,0001,10,70024,708
>25,00,000 and <= 50,00,0001,24,47241,302
>50,00,000 and <= 1,00,00,00036,77525,032
>1,00,00,000 and <=5,00,00,00017,51530,661
>5,00,00,000 and <=10,00,00,0006554,375
>10,00,00,000 and <=25,00,00,0001562,158
>25,00,00,000 and <=50,00,00,00026809
>50,00,00,000 and <=100,00,00,0006412
Total10,89,8642,36,487
Average income21,69,876

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.