0.11 Percent Of India’s Population Pays 80 Percent Of Its Personal Income Tax  

The Income Tax department shared some very interesting data last week. The following is an attempt to look at these data points to 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 the assessment year 2012-2013, the income tax returns had to be paid for the income earned in 2011-2012 .

The interesting thing nonetheless was that only 1.25 crore individuals paid the income tax. Data collected from the World Bank shows that in the year 2011, the population of India was 124.7 crore. This simply means that in the assessment year 2012-2013, only around one percent of India’s population paid the income tax.

One explanation for this, which is straightforward is that the income from agriculture sector was untaxed. Close to 50 percent of the country’s population still depends on agriculture for a living. Further, this also tells us 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 the income tax.

This denotes that among other things, a major part of the Indian economy continues to operate in the ‘black zone’. Hence, a tremendous amount of black money is generated, for which the income tax does not get paid.

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

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

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

3. Around 26 lakh Indians only filed the income tax 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 Indians showed losses under the income from house property. This primarily included the people who have taken 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 a “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 consequently do not pay 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 percent, 20 percent and 30 percent, with a higher rate being applied as the income goes up. Nevertheless, what portion of the income is the government actually able to collect as tax, post the deductions are applied, is an interesting question to answer.

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

5. While the release of a detailed income tax data is a good start, much more remains to be done. First and foremost, the data from more years needs to be released. This means releasing the data from prior to the assessment year 2012-2013. It also means releasing the data from years after the 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 if the income tax department could be more prompt in releasing such data.

6. One major complaint with the income tax department on this issue is that they released the data in the form of PDF files. While that is agreeable, the data in the form of excel files should have also 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 the data from the PDF files to an excel file.

Also, it would have been helpful if the exempt income (like dividend income from stocks, long-term capital gains on stocks etc.), had been declared. This would have given us an idea on the amount of potential tax the government is losing out on.

To conclude, this is certainly a transparent start. Nevertheless, the income tax data of consecutive years needs to be declared in the time to come.

The piece was first published on Equitymaster here.