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0.15 Per Cent of India's Population Pays 77% of Its Personal Income Tax

Nov 2, 2016

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A few days before Diwali, the Ministry of Finance released detailed income tax data for the assessment years 2013-2014 and 2014-2015. The income tax returns for the income earned during the financial years 2012-2013 and 2013-2014 were filed during the assessment years 2013-2014 and 2014-2015, respectively.

In late April, earlier this year, the government had released income tax data for the assessment year 2012-2013. We now have data for three years and it makes for an interesting reading. Let's look at Figure 1.

Figure 1:

Assessment year Total number of returns filed by individuals Total number of individuals paying income tax
2012-2013 287,66,258 125,18,636
2013-2014 335,85,294 166,47,061
2014-2015 365,13,034 190,97,559

Source: www.incometaxindia.gov.in

The number of individuals filing income tax returns has gone up from around 2.88 crore in assessment year 2012-2013 to around 3.65 crore in assessment year 2014-2015. This is a good jump of close to 27 per cent over a two-year period.

At the same time the number of individuals paying income tax has gone up from 1.25 crore to 1.91 crore, during the two-year period. This is a jump of 52.6 per cent. What this means is that a greater proportion of individuals filing income tax returns is also paying income tax though a large proportion still just files an income tax return without paying any income tax. Let's look at Figure 2.

Figure 2:

Assessment year Proportion of individuals filing income tax returns who also pay income tax
2012-2013 43.5%
2013-2014 49.6%
2014-2015 52.3%

During the assessment year 2012-2013 43.5 per cent of individuals filing income tax returns also paid some income tax. This has jumped to 52.3 per cent in assessment year 2014-2015. A greater proportion of those filing income tax also paying income tax is good news.

How do these numbers look with respect to the overall population? Let's look at Figure 3.

Figure 3:

Assessment year Total number of returns filed by individuals (in Crore) Population(in Crore)* Proportion of population filing income tax returns
2012-2013 2.88 126.4 2.3%
2013-2014 3.36 127.9 2.6%
2014-2015 3.65 129.5 2.8%

* Data sourced from World Bank

As can be seen from Figure 3, there has been some improvement in the proportion of population which files income tax returns. In the assessment year 2012-2013 it had stood at 2.3 percent. Two years later in assessment year 2014-2015, it had jumped to 2.8 per cent.

How about those paying income tax and not just filing income tax returns. Let's look at Figure 4.

Figure 4:

Assessment year Total number of individuals paying income tax (in Crore) Population (in Crore)* Proportion of population paying income tax
2012-2013 1.25 126.4 1.0%
2013-2014 1.66 127.9 1.3%
2014-2015 1.91 129.5 1.5%

* Data sourced from World Bank

As can be seen from Figure 4, in assessment year 2012-2013, 1 per cent of the population paid income tax. By assessment year 2014-2015, this had jumped to 1.5 per cent. While this is a substantial improvement, 98.5 per cent of the population still does not pay income tax. This is a reflection both, of our poverty and our scant respect for income tax laws.

There is another interesting trend that comes out of the data. A bulk of individuals who pay income tax, essentially pay an income tax of less than or equal to Rs. 1.5 lakh. Let's look at Figure 5, which deals with individuals paying an income tax of less than or equal to Rs. 1.5 lakh per year.

Figure 5:

Tax payable less than or equal to Rs 1.5 lakh
Assessment year Number of individuals Total tax paid (in Rs. Crore) Average tax paid (in Rs.)
2012-2013 111,28,419 23,446 21,069
2013-2014 150,64.997 37,107 24.631
2014-2015 171,79,474 43,964 25,591

In assessment year 2012-2013, 88.9 per cent of the income taxpayers paid an income tax of less Rs. 1.5 lakh. This had jumped to close to 90 per cent in assessment year 2014-2015. This means the bulk of the income tax paid by individuals is actually paid by a very small number of individuals. Let's look at Figure 6, which deals with individuals paying an income tax of greater than Rs. 1.5 lakh per year.

Figure 6:

Tax payable greater than Rs 1.5 lakh
Assessment year Number of individuals Tax paid (in Rs. Crore) Average tax paid (in Rs.)
2012-2013 13,90,217 91,109 6,55,358
2013-2014 15,82,064 1,02,393 6,47,211
2014-2015 19,18,085 1,47,244 7,67,661

Now compare Figure 5 with Figure 6 and it is more or less clear that those paying a tax of greater than Rs. 1.5 lakh during the assessment year, even though they are very small in number, pay the bulk of the individual income tax.

In assessment year 2014-2015, around 19.18 lakh individuals paid Rs. 1.47 lakh crore as income tax in total. The total tax paid by individuals during the year was Rs. 1.91 lakh crore. So, a very small number of people paid around 77 per cent of the individual income tax. Let's look at Figure 7.

Figure 7:

Assessment Year Total tax paid by individuals Total tax paid by individuals paying more than Rs. 1.5 lakh tax per year Proportion
2012-2013 1,14,555 91,109 79.5%
2013-2014 1,39,500 1,02,393 73.4%
2014-2015 1,91,208 1,47,244 77%

Hence, those paying an income tax of greater than Rs. 1.5 lakh, paid 77 per cent of the income tax paid by individuals during the assessment year 2014-2015. It would be interesting to see what proportion of the population do they make up for. Let's look at Figure 8.

Figure 8:

Assessment year Number of individuals who paid an income tax of greater than Rs. 1.5 lakh Population (in Crore) Proportion of population Proportion of income tax paid by individuals
2012-2013 13,90,217 126.4 0.11% 79.5%
2013-2014 15,82,064 127.9 0.12% 73.4%
2014-2015 19,18,085 129.5 0.15% 77%

Hence, in assessment year 2014-2015, 0.15 per cent of the population paid 77 per cent of the income tax paid by individuals. This is a slight improvement over 0.11 per cent of the population paying close to four-fifths of the income tax paid by individuals in assessment year 2012-2013.

This as I said earlier is both because we are a poor country and at the same time have scant respect for income tax laws. At the same time our income tax laws are extremely complicated as well.

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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11 Responses to "0.15 Per Cent of India's Population Pays 77% of Its Personal Income Tax"

Rajiv

Nov 3, 2016

While the computations are "technically" right, it is bit misleading, as pointed out by some other commentators (i.e. comparison should be only with 'employed' people in the labor force, % earning more than Rs. 2- 2.5 L/year, etc.) .

Nevertheless, we all know the following "facts"

1. There is a huge under reporting of income in some sectors (Most prominently, shopkeepers and related businessmen such as wholesale traders, distributors, SME owners,etc.. The other professionals such as doctors, lawyers, etc. though relatively less in numbers, but also account for a large hidden income). No government touches this segment as it's not only a vote bank, but also a funding source for elections (local to national). It is difficult , but not impossible to solve this if there is a will.

2. Only salaried class and retired people in the government and organized sector are paying 99% of their dues

3. The number of people in category #2 above, who are earning more than Rs. 2.5 Lakhs is not that great. Certainly, ones who are paying Rs. 1.5 L/year in taxes, the income for whom should be Rs. 7.5 Lakh or more (assuming an effective rate of 20% tax, post exemptions, etc.) is quite low.

4. Potential misuse of no tax on agriculture income [not easily solvable; making tax return compulsory for all farmers will be difficult to implement, due to illiteracy, low income , small holdings, benami holdings, or holding in the name of kids, etc. But still, may be a way out is to make filing tax return compulsory for bigger farmer - Could be defined as a family unit - holding, say 10-20 acres ]


Lastly, the perfect solution will come with technology, i.e. making cash obsolete. It's not a far fetched idea.. even implemented with great success in countries like Kenya (M-PESA). It will take may be 20-30 years in India, but it is coming.

Like (1)

G C Aron

Nov 3, 2016

It is a very good presentation of the data. However, Figure 8 depicts that the figures are improving year by year in respect of the 'Proportion of Income tax paid by individuals' who pay higher taxes. There may be substantial improvement after the implementation of GST. The transactions after implementation of GST will be transparent which will result into direct tax collection from more number of people.

Like (1)

Anil Kumar Gupta

Nov 3, 2016

Sir,
Data given in this article show that whereas number of those filing returns has grown by 27% those paying Income Tax has grown by 52%, a very encouraging trend.However,overall data suggest that average of of those paying tax to total number of those filing return is almost 50% only.Does it not call for a massive exercise to revisit the issue.In an article titled "Wider the net lower the haul"in The Economic Times dt.20 April 1998 Shri S S Bagai had mentioned that exemption limits had been substantially lowered as compared to that in 1930s ( in real current value of Rupee) while rates of tax have been raised substantially.He had concluded "It is absolutely frivolous for the government to inflict upon itself the tortuous task of dealing with a crore small income earners.It is more beneficial for the government to leave out the small tax payers, especially the salaried class, by restoring the exemption limit to its pre-war level... or preferably, upping it still higher." It will not be out of place to mention that so far TAX is concerned it is not confined to Income Tax alone. It is often mentioned by all, including our PM, that only 3% people pay tax whereas 100% people pay some kind of tax, directly or indirectly.Your tables above show that only about 1.5% people pay Income Tax.Will theGOI give serious consideration to Banking Transaction Tax or tax on bank deposit transaction at source as suggested by Pune based research organisation Arthkranti?

Like (1)

Damodar Vinayak Bale

Nov 2, 2016

"Chartered Accountants of INDIA" is an 'Institution' recognized by "Gov of INDIA". The members of this "INSTITUTION" could be made responsible for overall situation. The "Finance Ministry" too may not be following its "Concerned STAFF" the way they should respond. Since the "Cultural Language" was suppressed by "Foreign Rulers", degeneration of "EMOTIONS" and rise of "ECONOMICAL BENEFITS" has started. All the "LAWS" are still formulated in a "Language" that many do not follow. Brokers, who misguide many, are a 'growing community'. So....................

Like (1)

K Raghunathan

Nov 2, 2016

I, a retired professional, try to be as honest as possible in paying taxes.

And I pay because I want my days to be peaceful without wrangles.

The amount of corruption one reads about or hears does not make me smile as I send in my check. Funds meant for even orphanages get siphoned off:-( Can u go lower than that?

Like (1)

niranjan parikh

Nov 2, 2016

9833498540
If you can find data regarding exempt agriculture income (amount) and no.of individuals involved ,it will be interesting data.This will indicate to what extent agriculture.income exemption is responsible for poor tax collection,or tax avoidance.

Like (1)

Ravi Narayanan

Nov 2, 2016

The reasons for such a pathetic performance are many:

a) Many of our professionals (though expected to maintain books of account) operate on a cash basis and simply pay no / paltry tax.

b) Using / misusing agri income tax, many do not pay tax at all. No state government has the will power to tax agriculture income even if the income earned is in crores.

c) Our trading community is totally in a cash mode.

d) Exempting CG from stock market indiscriminately is unfair. Till last year, Anil / Mukesh Ambani can derive his total income from dividends / CG and pay no tax where as a Class IV employee in Central Govt has to pay tax.

Like (1)

Roshni

Nov 2, 2016

So what happened for the 'proportion of population paying income tax' to go from 1% to 1.5% in two years?

Like (1)

PRAFUL D MEHTA

Nov 2, 2016

9222316310
sIR,
Read your article and want to understand some points. You have compared income tax payers with the total population of India. Total population consists of children s and adults male and female. All are not employed and not earning then how all the people who is not earning or are childrens included for getting figure of income tax payers?
in india take the family of 4 as average for earning as one households and one earning unit and count it in calculation of income tax payers. After you count and find out the ratio and then you will find actual figures.
How many workers or employee gets more than 250000/-, two lac fifty thousand for the work in private sector?
To become incometax payer your earning should be more than two lac fifty thousand.
I request you to find out figure of people or family earning more than rs. two lac fifty thousand and eligible for be a income tax payer and then calculate a
whole thing and definately you will get different figure.

Like (1)

sashikumar

Nov 2, 2016

Dear MR.Vivek
please forward this column to the FM and tell him to stop this injustice to the honest tax payers. When
a system is not working properly over many years it is better to scrap it. Instead of reducing interest rates
to increase the liquidity it is better to abolish Income tax. The revenue loss can be compensated by levying more indirect taxes on luxury items. Hidden black money will come out and flood the economy. Before abolishing INCOME TAX ,FM should announce that old RS 500 and RS.1000 currency notes have to be exchanged for new notes in the banks within 6 months by showing source of income and PANCARD/AADHAR CARD. This will unearth black money and the ubiquitous fake notes circulating in the system. The rot and decay in the system is too deep and a root canal procedure is the urgent need of the hour.

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