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What Do Car Sales Tell Us About Black Money?

May 9, 2016

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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 23,446
>150,000 and <= 2,00,000 3,02,339 5,254
>2,00,000 and <=2,50,000 2,14,437 4,790
>2,50,000 and <= 3,50,000 2,64,990 7,818
>3,50,000 and <= 4,00,000 86,701 3,243
>4,00,000 and <= 4,50,000 69,077 2,930
>4,50,000 and <= 5,00,000 58,241 2,762
>5,00,000 and <= 5,50,000 48,197 2,527
>5,50,000 and <= 9,50,000 1,78,654 12,580
>9,50,000 and <= 10,00,000 10,506 1,024
>10,00,000 and <=15,00,000 63,876 7,746
>15,00,000 and <= 20,00,000 30,016 5,171
>20,00,000 and <= 25,00,000 16,795 3,740
>25,00,000 and <= 50,00,000 29,881 10,229
>50,00,000 and <= 1,00,00,000 11,077 7,474
>1,00,00,000 and <=5,00,00,000 5,042 8,907
>5,00,00,000 and <=10,00,00,000 266 1,788
>10,00,00,000 and <=25,00,00,000 90 1,393
>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 1,14,556
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.


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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.

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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20 Responses to "What Do Car Sales Tell Us About Black Money?"

V Thiruvalluvan

May 9, 2016



Whether the car sales figure is in INDIA only.

That is whether export numbers are excluded

Like (1)

Raja Iyer

May 9, 2016

Sir:

I enjoy reading all your articles. While I agree that Individuals having income from Agriculture could form a part of the car purchasers, I am not too sure of the black money aspect.

The reasons I say that is because purchase of a four wheeler involves the submission of a copy of the PAN Card (which is currently, by default, the ID Proof). Secondly, dealers do not encourage the payment of the cost in CASH. They prefer either Demand Drafts (again here the purchase of a DD above Rs. 50,000/= necessitates submission of a copy of the PAN CARD) or Cheques.

While the mere submission of copies of PAN CARDS does not mean that all are tax payers, it would need lots of guts for those who do not pay a single paisa in tax to buy a car after submitting these details.

The proliferation of Auto Loans by Banks, NBFCs and other lending agencies also means that the Borrower needs to submit a copy of his PAN CARD while applying for an Auto Loan.

It could be that buyers who pay a modest amount of Income Tax also have easy access and eligibility for such loans. Moreover, the number of vehicles per household is also increasing manifold (specially in urban and metro areas).

In my opinion, the reasons for the surge in auto sales could be a combination of all the above reasons.

Like (1)

AB Pereira

May 9, 2016

Not a very convincing argument, unfortunately a half baked report - quite ordinary from Vivek Kaul's standards. It does not take into account all angles properly. What about people earning long term capital gains from securities that is exempt from tax? What about companies buying cars? what about taxi companies buying cars? what about rich households buying multiple cars? What about NRIs without Indian income buying cars? And since the number of cars sold have not been properly divided into different categories - for example a Nano, Alto type of cars can be bought by people with no-tax categories or through their PF withdrawals/loans or LIC/bank loans etc.
Instead of generalising, the tax dept can focus on all big value cars costing say Rs 15 lakh and above, bought or registered in individual's names and compare that with the data of number of people in the above 50 lakh income category - perhaps there you may find some useful correlated data of people with black money.

Like (1)

ANANT MARUTI GAITONDE

May 9, 2016

Has the article considered cars purchased by companies, corporate customers, cars purchased with loans etc?

Like (1)

satheesh babu

May 9, 2016

I think there is a flaw in the argument regarding number of cars sold and assumption of purchasing power of those who buy. Assuming that most of the people who buy cars are having income of 5L or above is a big mistake. I think from experience majority should fall between the 2L to 5L bracket (for small to sub-sedan class cars) and those are people who saved money over couple of years and took a heavy loan. I this analysis needs to be a bit more deep to make such a statement. Equating real-estate with black money can be understood because of the amount involved, but trying to say that most of the people who buy cars are 5L+ income people means we are underestimating the savings patterns and determined behaviour of the consumer.

Like (1)

Prem Khamesra

May 9, 2016

The data picked up by you/ cited by you is fake data. All conclusions drawn by you, based on this fake data, are incorrect.
Please go to Income Tax Department's web site and get the correct data instead.

Like (1)

Ankur Jain

May 9, 2016

Hi Vivek, i see a few more possibilities of more cars being sold than the no of individuals who pay taxes:

1. Cars bought in the name of the Company;
2. More than 1 car is being bought by the individual who earn higher incomes.

No doubt that there would still be considerable gap in the number of cars sold and the people who pay taxes. As cars are being purchased for atleast a period of not less than 1 year.

Like (1)

Harish

May 9, 2016

Such a skewed analysis not expected from the author. Just by total number of cars sold vs total number of income tax payees doesn't mean cars are brought using black money.

There is no data in article like:
1. Of all the cars sold, how many of people took loans?
2. How many brought more than 1 car?
3. How many paid cash?
4. How many brought cars less than 5 lakhs?
6. What is the down payment for each vehicle?

Without proper data how can you justify the above article.

Like (1)

sunil daga

May 9, 2016

does the above data include tax payers who have paid tax (at source by means by being employed) but did not submit tax returns, the answer this query could lead to a different discussion altogether

Like (1)

Lucio

May 9, 2016

Very thought provoking analysis' of the data put out by the IT Dept.; both this one & the previous ones' on the black hole (aka bottomless pit) called real estate. Hope the IT Dept. is "following" you.

Like (1)
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