Monday, 6 April 2015

How many Indians pay income tax

India being a developing country is supposed to have a low population, paying Income Tax 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.

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.
  2. Refer Crorepati farmers: tax them please! to know how people are evading tax by showing more agricultural income.

  3. 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.
  4. 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.

Devaition 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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25 comments:

  1. very useful information . every taxpayer should know this . taxpayers -do not have any lobby to influence any decision. no govt will dare to touch rich farmers and traders . This also means only about 3-4 lakh people rule our country.

    ReplyDelete
  2. In India, it is very easy to avoid income tax and we know that no one will want to pay full income tax. - www.financeqlub.com

    ReplyDelete
  3. I urge the central govt to eliminate income tax slab and fix the tax uniformly of 10% to every tax payer

    ReplyDelete

  4. Nice Information !!

    It is very helpful information about Income Tax .

    Thanks for sharing

    Class 2 Digital Signature Certificate

    ReplyDelete
  5. Going by this stats above only 15000 crores are collected from the people in the income slab 0-5 lakh..Govt. should simply abolish income tax for this slab and bring in reforms so that more high earning individuals,which in India is quite a significant number,are made to pay taxes...

    ReplyDelete
    Replies
    1. What do u mean..do u think high income people will earn the money with out any hard work.. I'm midsize business man..after lot of challenges we are making profits..out of that directly 35% paying as taxes..isn't enough??

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    2. Ankur's query is valid. The doubtshould come in everybody's mind.because the tables shown above has some error. See the title of the right most column of the 2 tables.
      In the first table it should have been "Percentage of Tax Payers" and not just Percentage of Tax --which appears in Table 2.

      Delete
    3. Thanks for pointing out the mistake, it has been rectified. Though what Ankur has stated is according to table 2 which is correct. 15000 crores are collected from the people in the income slab 0-5 lakh.

      Delete
  6. Hi
    If citizen of Our India to avial the govt fecelity just think ones fo tax paying
    Evan less then 1 thousend
    No idea how rich our india will be

    ReplyDelete
  7. A very informative article !!

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  8. Just imagine if politicians and all govt employees also eligible to pay taxes, approx 50 lakhs govt employees x 10% base tax.... Wouldn't the number increase drastically.... But they all are under tax exemption and we middle class people pay on their behalf.... Incredible India!!

    ReplyDelete
    Replies
    1. Govt. employees are not exempted from paying income tax. They do pay some where you got the wrong information!

      Delete
  9. Hi I received this page link through whatsapp, may I know who is the author and also also wants to know how India will be benefited when tax base goes up?

    ReplyDelete
    Replies
    1. Who has written the post and the source all that info is with in the post. Well if the tax base goes up there will be more monies for the Govt. that is obvious.
      Also, since govt. is not able to bring more people under the income tax net it is taking the easy way out increasing the indirect taxes like Service tax, VAT and imposing cess and surcharges like edu. cess, infra cess, clean cess etc. etc... Which hits the tax paying people twice ...

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  10. can you let us know the updated data, as this seems to be bit outdated along with this i have some questions if this small number of people in india are having high incomes then how the luxury companies showing this kind of growth why there are so many cars in india

    ReplyDelete
    Replies
    1. Who said there are so many cars in India? There are cars in cities. Vehicles Per Capita in Inda in the year 2011 was 18. That means there are only 18 cars for every 1000 person (Source: http://www.rediff.com/business/slide-show/slide-show-1-auto-nations-with-most-number-of-cars-per-1000-people/20110909.htm#1). This number is said to be 35 by 2025 (Source: www.teriin.org/policybrief/docs/cars.pdf)

      Delete
  11. After going through the blog. I wish that the tax payers get some special quota system in India. Compared to other existing quotas. There must be some exempt for the middle class who labour hard to move the whole country forward. This may also influence more people to pay tax and the defaulters may start paying some tax amount to enjoy the benefits

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  12. 10 cr households evading tax... My God and we are the super powers of future......

    ReplyDelete
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    ReplyDelete
  14. it is better to cancel all taxes make all transaction in bank and impose only one tax i.e 0.1 on total transaction withdrawl, Online Transfer, NEFT RTGS, mobile banking, etc.,

    ReplyDelete
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    ReplyDelete