Less than 2 per cent Indians pay income-tax

It’s official. India has a huge parallel unaccounted economy as the newly released tax data by the government indicates that just 2.88 crore people have filed returns in FY12-13 — 2.27 per cent of India’s population.

Of this, a small percentage actually pays income-tax as 89 lakh of salaried people and 1.4 crore of business people reported less than Rs 5 lakh income.

As per income-tax rules, an individual cannot escape from paying income-tax if he earns more than Rs 5 lakh (after basic threshold and claiming deductions for HRA/Section 24, Section 80C, 80D, 80CCF).

If the tax data is considered alongwith the tax threshold post-deductions, it shows that an unbelievable number of over 98 per cent of Indians earn less than Rs 5 lakh a year or little less than Rs 45,000 a month.

Of this, only 8.74 lakh people have reported business income of over Rs 5 lakh — a number which is most difficult to believe as there are lakhs of small businesses with a fairly decent income.

The number of those who filed returns is much less than the number of people who have PAN. According to the government, nearly 4.86 crore individuals have PAN cards. However, only 47 per cent of them have filed income-tax returns, while 63 per cent have skipped it.

Minister of state for finance Jayant Sinha on Friday told the Lok Sabha that 50 per cent of the smaller firms are not paying taxes and the government has taken revolutionary steps to ensure there is no tax evasion.

After the criticising by famous French economist Thomas Piketty, the government has made public data related to taxpayers such as total number of taxpayers, income disclosed in returns by various categories of taxpayers and the number of PAN holders.

Mr Piketty had raised the debate on unequal wealth distribution in the world with his best-seller Capital in the Twenty-First Century.

However, Mr Piketty was not impressed with the amount of data released on Friday. “They (India) released detailed data by income range for one year only (2012-2013). For the entire period 2000-2015, the only data that was released is at the aggregate level, total numbers of taxpayers, total tax revenue, etc. In order to study the evolution of income distribution we would need to have the detailed data by income range for all years,” he said.

Last week, Mr Piketty had said that he was still waiting for open access to Indian income-tax statistics, while referring to an earlier assurance given by Chief Economic Advisor Arvind Subramanian to this effect.

The largest group of tax payers earned an average of Rs 6,94,000 while just six people declared an average income of Rs 68.72 crore in 2012-13.

As per the data corporate tax collections have risen nearly 12-fold in last 15 years and personal income tax 9 fold but share of direct taxes in the economy has fallen to almost a decade low of 5.47 per cent.

The share of direct taxes to GDP touched a peak of 6.3 per cent in 2007-08 and has since declined to 5.47 per cent in 2015-16. It was 3.25 per cent in 2000-01. Maharashtra contributes the biggest share of direct taxes at Rs 2.77 lakh crore in 2014-15 when total collections were Rs 6.96 lakh crore. Delhi was second biggest contributor at Rs 91,247.90 crore while Karnataka was third at Rs 60,595.22 crore.

Direct taxes made up for 36.31 per cent of the total taxes in 2000-01. This ratio has risen to 51.05 per cent in 2015-16. The ratio of direct taxes to total taxes in 2015-16 is the lowest in past 9 years with a peak of 60.78 per cent being hit in 2009-10. The ratio was 52.97 per cent in 2007-08 and over 56 per cent in 2013-14 and 2014-15.

The cost of tax collection has however gone down from 1.36 per cent to 0.62 per cent. In absolute terms the spending on collection of taxes has however risen from Rs 929 crore to Rs 4,593 crore during the period.

Prime Minister Narendra Modi took to the twitter to say it was a “landmark” decision to publish income tax data. “It is a big step towards transparency & informed policy making.” “Am sure this data will be used by researchers and analysts and lead to enhanced insights for policy making on taxation,” he said.

India used to publish the All India Income Tax Statistics until 2000, when it was discontinued.