How Many Indians Pay Income Tax

India being a developing country is supposed to have a low Income Tax paying population but it would still be surprising to read that only about 3% of Indian population pay Income tax, which comes to 35 million tax payers (3.5 crore). In that too majority of the tax payers fall under 2.5 - 5 Lakhs slab. Just as comparison in USA around 45 percent of the population pays taxes.

Update : Income tax department has released the data for AY 2015-2016. As per the data there were 4.07 crore returns filed by individuals in AY 2015-2016 (FY 2014-2015). Number of returns filed in AY 2014-2015 was 3.65 crore.

But the disappointing fact is that out of 4.07 crore tax returns filed about 2.06 crore people actually paid any tax. Rest of the 2.01 crore filed the return but paid zero tax.

Of that 2.06 crore who did pay tax, around 1.85 crore were in the lowest tax slab and paid an average Rs. 24,000 as income tax in AY 2015-2016 meaning a collection of Rs. 44615 crore from these 1.85 crore people.

Out of the total returns filed, only 9690 paid income tax of more than INR 1 crore. Total income tax collection from these 9690 tax payers was 22,984 crore.

There was only one individual who paid more than 100 crore in taxes, tax collection from that individual was 238 Crore.

Reference : https://www.incometaxindia.gov.in/Documents/Direct%20Tax%20Data/Income-Tax-Statistics-IT-Return-AY-2015-16.pdf

As per the last census average household size in India is 4.8 person per house hold. If we take it as 5 and assume there is only one earning member per household then these 3.5 crore tax payer people take care of 17.5 crore population. Moreover according to Rangarajan committe below poverty line population in India is estimated at 363 million (36.3 crore) in 2011-12 This means 29.5% of the India population lives below the poverty line.
If we add these numbers (Population which is coming from the household where one of the member is paying taxes and the population which is below poverty line thus unable to even take care of their daily bread forget taxes)

17,50,00,000 + 36,30,00,000 = 53,80,00,000 (53.8 crore)

Now if we take the population of India as 125 crore (1,25,00,00,000 or 1.25 billion), number of people left -

1,25,00,00,000 - 53,80,00,000 = 71,20,00,000 (71.2 crore)

If we go by 5 people per houshold that will mean 14.24 crore households which are not paying any income tax.

If we take another 30% population whose income is less than the taxable income that will leave out another 21.36 crore people. Still there are 49.84 crore people left coming to around 10 crore household. Which means roughly there are around 10 crore households who should pay taxes but not doing so.

It's anybody's guess that most of these people who are not paying any taxes are -

1. Rich farmers - Agriculture income is exempted from tax in India. Though many of the small farmers may be having a hand to mouth existence but there are rich farmers too who should be taxed.
Refer Crorepati farmers: tax them please! to know how people are evading tax by showing more agricultural income.
2. Business owners - According to RBI data, cash still accounts for 90 per cent of all monetary transactions in India. So it is easy for the business owners to manipulate their taxable income by dealing in cash and under invoicing or not giving invoice at all.
3. Self Employed Professionals - This can be explained through an example -
   Let's take an example of two chartered accountants A & B residing in the same apartment. A works in a financial institution and B has his own practice in the same commercial complex. Both of them drive to office. They both spend around Rs 12,000 on petrol bills. While A gets tax benefit of only Rs 1600 (Conveyance limit has been increased from Rs. 800 to Rs. 1600) B can claim the entire amount as a deduction from his income. Same for food bills self employed can claim the whole amount as business expenses. So self employed person can claim a lot of expenses as business expenses and pay almost nil tax.

Deviation in the number of Income Tax payers

Data about the number of income tax payers also show the inequality in the earnings and how the wealth is concentrated among very few, it also shows how people are not disclosing their true income. We have to go through some data to see that -

Details of number of income tax payers in the tax slabs

Details of number of income tax payers in the tax slabs of Rs. 0-5 lakh, Rs. 5-10 lakh, Rs. 10-20 lakh and beyond Rs. 20 lakh, as furnished by the Ministry in their written submission are given as under :

Slab	Number (in lakhs)	Percentage of taxpayers
0-5 lakhs	288.44	89.0%
5-10 lakhs	17.88	5.5%
10-20 lakh	13.78	4.3%
>20 lakh	4.06	1.3%

This data shows how much inequality there is among the tax payers. Only 1.3 percent of the tax payers have taxable income above Rs. 20 Lakhs, whereas, 89 percent of the tax payers have taxable income not more than Rs. 5 Lakhs.

Amount of tax collected as per tax slabs

Details regarding amount of tax collected under the existing rates and percentage of tax collected in each of the said slabs as furnished by the Ministry are given as under :

Slab	Tax Collected (Rs. in crores)	Percentage of tax collected
0-5 lakhs	15,010	10.1%
5-10 lakhs	21,976	14.8%
10-20 lakh	17,858	12.1%
>20 lakh	93,229	63.0%

Again notice the deviation 89 percent of tax payers are paying 10.1 percent of the taxes where as 1.3 percent of tax payers pay 63 percent of the taxes.

Going by the data it can be seen that GOI need to increase the tax base rather than increasing the income tax or service tax (Which is increased to 14% in this year's budget (2015)). Any increase in service tax hits the salaried class more as they end up paying more in double taxation.

Readers are welcome to present their thoughts

** Source for this post is Standing commitee on finance(2011-12) report (49).

That's all for this topic How Many Indians Pay Income Tax. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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