What Do Car Sales Tell Us About Black Money? - Vivek Kaul's Diary
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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?"

jaydip Desai

Mar 4, 2017

All the property registration office and Car Distributors should be connected with IT departments. there must be rules that the person or company purchasing car with above 5 lac must show their income proof and house purchasing more than 10 lac rupees must show the income proof as well. here is the major black money coming. We have many farmers who sell their land in crores and living lavishly in bunglow of 1 crore and having hardly davidson, mercedes benz and never pays tax. they say that farmers do not need to pay taxes.

this is completely demotiavation for service class people who earn less and pay tax and never be able to buy even Maruti Alto. hahaha.

Government must go behind the luxury car owners who have car worth more than 5 lac and house owner who have more than 1 house and worth more than 10 lac for each house. if they do so then people will have fear to purchse this product, alternatively if they will file ITR to get the luxury or their money will be garbage for themselves. and inflation will be down.

peolpe are paying INR 1500 to pan masala per month and when it times come to pay income tax they say my income is not much even though they are travelling in Honda city and living in 1 crore house in the village.

there must not any loopholes for any one. Every person lives in india must pay income tax. and if not then governemnt must not take the income tax for the current tax payer as well. they must stop income tax department, if only small numbers of income tax payers will be in india. Governement must impose highr taxes on luxury products to recover it from the correct person.

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Bhanu

May 9, 2016

Well, there was a news item about a farmer young son who carried bag full of cash to Delhi to buy a Ferrari to gift it to his dad! They are the ones who are buying the cars! There are a lot of company owned cars, government buys cars and of course there are taxis.

Unlike real estate where the pricing is hazy or concealed, cars are clearly priced. Of course in second hand market, cash transactions are significant.

Any way this still doesn't explain such a huge gap. There was one in 5 criteria, wherein all car owners (credit card owners etc.) were supposed to file IT returns. Clearly this doesn't seem to be happening and tax men are not after them as much as they should be, or the tax men know who these people are and make their cut.

Like (2)

Paresh Dutta

May 9, 2016

While the data is relevant, Need to consider that the people who earn money through salary don't have any options for hiding tax and so they just pay it. On the other hand, there are people getting money from various other sources such as realestate and small business, there is easy way of hiding taxes, if we leave the big businesses. There are people getting money from foreign and so they buy cars, the money actually coming from their kids who leave in foreign countries, which is exempt from tax. So, we need to consider other parameters while coming to any conclusion.

Like (1)

K.Ramanaiah

May 9, 2016

Dear Sir ,I feel that ,it is not only through the black money that some people are buying cars,but it is also possible that some corporate houses and business entities are buying cars in the name of the companies.Some times it is quite possible and also a fact that many individual are owning more than one car.I feel your assumption that mostly cars are being bought through black money may not totally correct.

Like (1)

Nandan Shah

May 9, 2016

Your analysis need to take into account some facts
(1) Many rich tax payers can have more than 1-2 cars
(2) We have 7-8 million NRI. They do not pay taxes, but their parents have cars
(3) Rich farmers
(4) Companies/Corporates owning cars
(5) Taxi owners
(6) Cars owned by Govt
(7) Business people who can plan their tax

Like (1)

Suresh Kabra

May 9, 2016

It is well known fact that people in business like our family baniyas, vegetable Paan & fast food vendors, professionals (doctors, CAs & lawyers) are real culprits & a very high no of them own real estate & buy cars. I know many in each of these categories including some vegetable & Paan vendors who earns many times more than me & own bigger property & car than me, but seldom show their complete earnings in tax returns, if at all file ITRs. IT dept will do well to go after these people & scrutinise at-least 50% ITRs in these categories, if not all. To start with connect all Registrars Offices (property) & car manufactures with IT office & make PAN necessary for any transaction above 10 lacs mandatory for property & 2 lacs for cars. If PAN of present property & car owners are NA then they should be asked for the same, details be provided to IT dept & ITRs scrutinise. Unless a person earns more than 2.5 lac pa, he cannot even imagine purchasing a property or car. This will force many of real state & car owners to file ITRs & reduce black money in the system.

Like (2)

vibhor jain

May 9, 2016

Respected author a lot of cars are also bought by corporates who will not figure as individuals.
You may like to factor that also.

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Varun Narula

May 9, 2016

What is the breakup of cars sales by consumes - for e.g. not all purchases are done by tax paying individuals? The Government - central and state, PSUs, private businesses for a large percentage of the consumer sales. How much would the numbers change then ?

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Subbu , Subramanaim

May 9, 2016

VIvek

Your argument is powerful and data is revealing .

Please note that this is also simplistic on account of following aspects ( which car matters of detail ):

1) I for one reduce my taxable income by generously donating to charities that have 100% exemption for contribution made
2) people also have high current income reduced by past losses carried forward which is allowed to be set off

3) many high networth individual I know have tax free income from coupons of tax free bonds , dividends from investors in Preference shares ( from current year dividend is taxable beyond 10 lacs @10%)
And as far as car ownership is concerned it is a distinct possibility that cars are also owned by business entities namely proprietorship , partnership , LLP , limited companies . I do recollect fondly my own interpretation during my days of being a CA student when I found cars to be a 'tax shield instrument ' and not transportation device - car sales used to peak in March when financial year closed and people had made profits beyond estimated and paid for advance tax - they fought cars !!!


While there is still no justification for the large numbers of cars sold and low numbers of assessees paying tax on income in excess of 5 lacs , a well researched article by you will need to have some more details and adjustment for finer aspects .

Aggregates in statistics can be extremely misleading and I request that you are not trapped in such a situation .



Thanks

Best Regards
Subbu,Subramaniam

Like (1)

M Muralidharan

May 9, 2016

People buy small to big cars in instalments even if they don't pay taxes. Many luxury cars are bought in business names. Hence, this co- relation may be incorrect as far as IT vs Car sales is concerned.

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