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0.11 Per Cent of India's Population Pays 80% of Its Personal Income Tax

May 3, 2016

28 The Income Tax department shared some very interesting data last week. In today's column I will look at these data points and try and make some sense of them.

  1. In the assessment year 2012-2013, around 2.87 crore individuals filed income tax returns. The total income tax collected from these individuals amounted to Rs 1,14,555 crore. In assessment year 2012-2013, income tax returns for the income earned in 2011-2012 had to be paid.

    The interesting thing nonetheless was that only 1.25 crore individuals paid any income tax. Data from the World Bank shows that in 2011 the population of India was 124.7 crore. This basically means that in assessment year 2012-2013 around 1% of India's population basically paid income tax.

    One explanation for this is straightforward that income from agriculture is untaxed. Close to 50% of the country's population still depends on agriculture for a living. Further, this also tells you that India is a poor country, where most people earn a taxable income of under Rs 2.5 lakh per year, above which one has to start paying income tax.

    What this tells also tells us among other things, is that a major part of the Indian economy continues to operate in the black zone. Hence, a tremendous amount of black money is generated, on which income tax does not get paid.

  2. Around 3.94 lakh Indians pay a tax of greater than Rs 5 lakh. In total they paid an income tax of Rs 64,313 crore in assessment year 2012-2013, which made up for around 56% of the income tax paid by individuals.

    Further, around 13.9 lakh Indians paid an income tax of greater than Rs 1.5 lakh. In total, they paid an income tax of Rs 91,110 crore. This made up for around 79.5% of the total income tax paid by individuals for the assessment year 2012-2013.

    This means that around 0.11% of India's population (13.9 lakh divided by 124.7 crore) paid around 80% of the income tax paid by individuals in the assessment year 2012-2013. This is one data point that clearly tells you how few Indians actually pay income tax.

  3. Only around 26 lakh Indians filed for income from house property under the individual category. A total income of Rs 29,927 crore was declared under this category.

    Of this around 6.06 lakh showed losses under income from house property. This would primarily include people who have taken on a home loan to buy a house and are repaying it. The interest paid on a home loan can be adjusted as a loss. Prima facie the number seems to be extremely low.

    Further, this means that around 19.95 lakh people declared "real" income from house property. This is another extremely low number. What this means is that there are only 20 lakh landlords in the country. This is a clear indication of the fact that most landlords are getting their rents paid in cash and not paying any income tax on it. It may also be an indication of the fact that many landlords have not put up their homes on rent.

  4. The data points released by the income tax department answers a major question-what is the effective rate of personal income tax in India. We all know that there are three income tax rates of 10%, 20% and 30%, with a higher rate being applied as the income goes up. Nevertheless, what portion of income is the government actually able to collect as tax, after all the deductions are applied, is an interesting question to answer.
    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 3,290
    Other sources income 1,28,020
    Interest income 44,918
    Total Income 12,67,085
    Total tax collected 1,14,555
    Effective rate of income tax 9.04%

    Take a look at the above table. For the assessment year 2012-2013, individuals declared a total income of Rs 12,67,085 crore. On this an income tax of Rs 1,14,555 crore was collected. This means an effective rate of 9.04%. Hence, the effective rate of income tax is even lower than the lowest rate of 10%. This is clearly a reason to worry for the government.

  5. While the release of detailed income tax data is a good start, much more remains to be done. First and foremost, data from more years needs to be released. This means releasing data from prior to assessment year 2012-2013. It also means releasing data from years after assessment year 2012-2013. More data would help researchers spot trends over the years.

    The data released last week is now almost half a decade old. It would be great that in the time to come, the income tax department can be more prompt in releasing such data.

  6. One major complain I have with the income tax department on this is that they released the data in the form of PDF files. While that is fine, data in the form of excel files should also have been released. This makes the data machine readable immediately and is of tremendous importance for researchers. Otherwise a lot of time is uselessly spent in transferring data from the PDF files to an excel file.
  7. Also, it would have been great if exempt income (like dividend income from stocks, long-term capital gains on stocks etc.), would also have been declared. This would have given us some idea how much potential tax is the government losing out on.

    To conclude, this is a good start. Nevertheless, more income tax data needs to be declared in the time to come.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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16 Responses to "0.11 Per Cent of India's Population Pays 80% of Its Personal Income Tax"

Bruce Kuriakose

May 3, 2016

The direct tax paid yield is around 10 % only. but what about the indirect taxes paying post income tax through VAT,service tax,stamp duty,entertainment tax, excise duty, cess etc. After this total tax deduction it only get a 50 to 60 % real income.

Like (3)


May 3, 2016

Your article on personal income tax is informative and the data indicate that there may have been little
improvement in succeeding financial years.
The data regarding expenses including salary paid to CBDT staff during FY 2012-13 for collecting /assessing ITRs etc should have also made known to public. This would have shown real return of personal income tax
collected from the population of 1%. Anyway to my estimate it may be between 7 to 8 % after deducting the expenses.
So much so Income Tax Deptt is reporting shortage of staff around by 15000 employees.If this much staff is inducted what would be real return of personal income tax to the Govt , only an expert actuary can tell.

Like (1)


May 3, 2016

IT Department must also declare the direct and indirect expenditure incurred annually to run the Department. May be it is more than what the Nation earns from IT. Perhaps, it may be better to do away with income tax and increase the indirect taxes proportionately. This will remove all the 'black money' instantly.
Alternatively, make all incomes taxable at 1%, to be deducted at source, irrespective of the amount of income earned. Counterbalance it by a proportionate increase in minimum wages etc.
Any or all these will reduce corruption and harassment, increase net collection of taxes, improve India's image and make our society happier! Anyone bold enough to try it?

Like (1)


May 3, 2016

If corruption is weeded out automatically Official Tax collection will surge!!

Like (1)

D. Sampat Kumar

May 3, 2016

A good read. I T dept should also publish the number of tax payers under Salaried & business class. Also they should publish the amount of tax paid under different slabs and the number of tax payers in that slab. This would help in getting the weighted average rate which may be more meaningful.

Like (1)

Subramanian Murthy

May 3, 2016

The statistics clearly shows that people do not show the true income and income from house property is not reflected because it is taken in cash are deposited in the account of person who does not really own the property and whose income can be below taxable limit. The government should initiate the process of getting online information from the tenants who pay cash or to whom receipt is not given and upload the information in the return about the property details and where PAN number is missing of the recepiant strict action should be initiated. Unless the government machinery becomes corrupt free and do there job sincerely and truthfully this would continue and on records India would continue to be a poor country at the same time even individuals who do not pay tax continue to own multiplexes, cars and immoveable properties.

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