Here's More Data to Show How Over-Priced Indian Real Estate Is - Vivek Kaul's Diary
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Here's More Data to Show How Over-Priced Indian Real Estate Is

May 6, 2016

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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 3,290
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 32,048
>4,50,000 and <= 5,00,000 6,96,210 33,032
>5,00,000 and <= 5,50,000 5,95,298 31,190
>5,50,000 and <= 9,50,000 20,23,583 1,40,464
>9,50,000 and <= 10,00,000 1,00,155 9,760
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 32,048
>4,50,000 and <= 5,00,000 6,96,210 33,032
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.


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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.

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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8 Responses to "Here's More Data to Show How Over-Priced Indian Real Estate Is"

Siddharth Jain

May 14, 2016

Nice analysis but would like to point out that income ranges pointed out by income tax department is total income after all deductions and exemptions but actual incomes may be higher before deductions and exemptions. As regards home loans, loans are provided based on net take home pay for salaried class and not based on annual income filed in income tax returns. So a person may have a net take home pay of Rs.55000 but in income tax returns his annual income may stand at Rs. 4.5 lacs after deductions and exemptions. Such a person may easily get a home loan of around Rs.25-30 lacs. Though, I agree that real estate rates need to come down sharply.

Would request your counter views too.

Siddharth Jain

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kunal

May 7, 2016

Thanks for the insight. There's plenty of flats in Noida, Grater Noida, Ghaziabad n Gurgaon and very few buyer.

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SUBHRO DALAL

May 7, 2016

From the IT data vis-à-vis the number of high value flats being sold its quite evident that non IT payers are buying the flats.

Like 

Niranjan Bangera

May 6, 2016

If you torture data enough, it will tell you whatever you want it to tell you!!

Like 

chandra sekhar

May 6, 2016

1.When I was working (that is before I quit my corporate job), my employer - a large cement manufacturing 'listed' company, used to pay good part of salary in cash.

2.Most government employees have 'other income' that do not get reflected in their IT returns.

So analyzing these figures may not always give us correct picture.

There are many other factors that influence real estate prices, besides salary/income of an 'average' Indian.

Like (1)

Rabindra Sankar Das

May 6, 2016

A very interesting in depth study

Like (1)

MKD

May 6, 2016

One point seems to be missing in this analysis. About 17089773 no. Of non salaried individuals have filed returns which is 46.36% more than returns filed by salaried individuals but average national income is Rs.4.4 lakh whereas average salaried individual is Rs.5.37 lakh. This means more no. ( as compared to salaried) of non salaried individuals are filing returns but there sum contributions in the kitty is quite less. This can be due to two reasons. Either, like in case of salaried Individuals average income of 91% non salaried individuals are much less than their counterparts, or, non salaried individuals are playing hide and seek with income tax department. Nation building process not looks to being shared equally here.

Like (1)

Suhas Ramakrishnan

May 6, 2016

Hi,

There is something iffy about the data you are analyzing since it says that in a country where bulk of exports is IT and the predominant model there is the bottom heavy offshore model, only 156 indiviudals have filed their returns for 10-25L range of income and a mind boggling 6 filed for the next higher range. I worked in IT until early this year and just in Cognizant, I can guarantee there is at least 50 or more associate directors earning gross salary in the 10-25L range.

Would you comment?

Regards,
Suhas.

Like (1)
  
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