returned income

A couple of days back, the ministry of finance published income tax data for assessment year 2015-2016. The income tax returns for the income earned during the financial year 2014-2015 were filed in the assessment year 2015-2016.

I had written a similar piece last year based on data published for the assessment ears 2013-2014 and 2014-2015. This piece is an extension of that.

We now have data for four assessment years starting with 2012-2013 and up to 2015-2016, and it makes for an interesting reading. Let’s start with Table 1.

Table 1:

Source: incometaxindia.gov.in 

What does Table 1 tell us? It tells us very clearly that both the number of tax returns filed by individuals as well as the number of people paying tax has been growing over the years.

While, the total number of returns being filed by individuals has risen at 12.3 per cent per year, the total number of individuals paying income tax has risen at the rate of 18 per cent per year and that is clearly good news.

Now let’s take a look at the proportion of people filing income tax returns, who also pay income tax (in Table 2).

Table 2:

Source: incometaxindia.gov.in 

Table 2 clearly tells us that only half of people filing income tax returns pay income tax. This ratio is way too low. What this basically means is that the current system is so structured that it is generating a lot of work for chartered accountants and others who are in the business of filing income tax returns.

How do things look vis a vis overall population? Let’s take a look at Table 3.

Table 3:

* Population data sourced from World Bank.
Source: Author calculations on data sourced from incometaxindia.gov.in 

Table 3 tells us that only 3.1 per cent of the country’s population actually files income tax returns. This figure has constantly been improving. Now let’s take a look at what proportion of the country’s population which actually pays tax in Table 4.

Table 4:

* Population data sourced from World Bank.
Source: Author calculations on data sourced from incometaxindia.gov.in 

Hence, around 1.57 per cent of the country’s population paid any income tax in 2015-2016. While a figure of 1.57 per cent sounds atrociously low on the whole, things do not turn out as bad, once we take other factors into account.

Agricultural income is tax free. A bulk of country’s workforce is dependent on agriculture for its livelihood. The labour force participation rate of women in case of India is very low, i.e., most women don’t work for a living. Over and above this, there are the young and the old, who aren’t making any money or enough money for that matter. And India is a young country with a bulk of its population being under 25 years or age. Once we adjust for all these factors the numbers in Table 3 and Table 4 do not look so bad.

Having said that, there are inconsistencies which need to be pointed out. There were only 57,399 individuals who have a returned income of greater than Rs 1 crore. Also, there were only 1,68,318 individuals with a returned income of greater than Rs 50 lakh in the assessment year 2015-2016 (Returned Income is the total income after chapter VI-A deduction and deductions u/s 10A/10AA (wherever applicable)). This is a tad difficult to believe when we look at other data points like the number of luxury cars that Indians buy every year, the number of Indians going abroad etc. Hence, there is a proportion of the population which is not declaring its taxes properly.

Of the 2.06 crore individuals who paid tax, a bulk of taxpayers (around 1.85 crore) paid a tax of less than Rs 1.5 lakh, during the assessment year 2015-2016. Take a look at Table 5.

Table 5: Tax payable less than or equal to Rs 1.5 lakh

Source: Author calculations on data sourced from incometaxindia.gov.in 

So, the average tax paid by those paying a tax of less than Rs 1.5 lakh was Rs 24,133 during the assessment year 2015-2016. This basically means that the bulk of the tax is being paid by those paying a tax of greater than Rs 1.5 lakh. Let’s take a look at Table 6.

Table 6: Tax payable greater than Rs 1.5 lakh

Source: Author calculations on data from www.incometaxindia.gov.in 

Now compare Table 5 with Table 6 and it is more or less clear that those paying a tax of greater than Rs 1.5 lakh during the assessment year 2015-2016, even though they are very small in number, paid the bulk of the individual income tax. Now let’s take a look at Table 7.

Table 7:

Source: Author calculations on data from www.incometaxindia.gov.in 

Hence, those paying an income tax of greater than Rs 1.5 lakh, paid 76.3 per cent of the income tax paid by individuals during the assessment year 2015-2016. It would be interesting to see what proportion of the population do they make up for. Let’s look at Table 8.

Table 8:

Source: Author calculations on data from www.incometaxindia.gov.in 

Hence, in the assessment year 2015-2016, 0.16 per cent of the population paid 76.3 per cent i.e. more than three-fourths of the income tax collected from individuals. Indeed, this is worrying. But what is more worrying is that India had only 1,68,318 individuals with an income of greater than Rs 50 lakh in the assessment year 2015-2016. This just doesn’t sound right.

The column was originally published on December 22, 2017.