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Income Tax Returns in India Show Changing Patterns and Income Inequality

Income Tax Returns in India Show Changing Patterns and Income Inequality

Significant shifts in taxpayer compliance and income distribution were revealed by the Income Tax Department's newly disclosed income tax return statistics for the assessment years 2019–20 to 2021–22. This data also reveals an alarming trend that worries policymakers: a significant portion of those who are currently in the tax system neglect to file their returns.

Increased Tax Returns

A total of 6.75 crore taxpayers filed income tax returns for the assessment year 2021–22 (financial year 2020–21), up 5.6% over the 6.39 crore files for the previous year. Furthermore, 2.1 crore taxpayers paid taxes but failed to file returns, highlighting a recurring problem.

Expansion of Tax Base

The Income Tax Department refuted allegations of income inequality by demonstrating that, between Assessment Years 2013–14 and 2021–22, individual taxpayer returns rose by an astounding 90%. This increase represents significant growth in the gross total income of persons across different income categories and indicates the expansion of the taxpayer base, which can be attributable to various initiatives implemented.

Crucial Results in Tax Data

1.      Taxpayer Demographics: Of the 6.75 crore taxpayers in the fiscal year 2021–2022, 4.46 crore paid no taxes, while roughly 2.1 crore paid taxes but failed to file returns. Over time, this tendency has mostly stayed the same.

2.       Growing Taxpayer Numbers: From 5.87 crore in AY 2018–19 to 6.75 crore in AY 2021–22, the overall number of taxpayers has been steadily increasing.

3.       Taxpayers with No Tax: From 40.3 percent in AY 2018–19 to 43.1 percent in AY 2019–20, the percentage of taxpayers paying no taxes climbed. It peaked at 67.3 percent in AY 2020–21 before declining to 66 percent in AY 2021–22.

4.      Individuals Paying No Tax: From 2.23 crore in AY 2018–19 to 4.28 crore in AY 2021–22, there were more individuals paying no tax. In a similar vein, businesses that paid no tax saw an increase from 3.73 lakh to 5.08 lakh in the same time frame.

Trends in Salaried Individuals' IncomeApproximately 6.36 crore people, or over 94% of all taxpayers, filed income tax returns in AY 2021–2022. The majority (3.25 crore people) had no salary income, followed by people with incomes of Rs 5.5-9.5 lakh (94.52 lakh people) and Rs 10-15 lakh (32.46 lakh people).

Issues with Income Inequality

Based on these facts, critics have expressed worries about income disparity, including the Congress. They made note of the fact that, in 2021–2022, the top 1 percent of income taxpayers earned 23 percent of all income, up from 17 percent in 2013–14. The top 1% of taxpayers had their income grow 60% faster than that of the bottom 25% of taxpayers, indicating that the ultra-rich saw their income growth outpacing that of the middle class.

The Tax Department's Opinion

In response, the Central Board of Direct Taxes (CBDT) disclosed that 53 lakh first-time filers were among the approximately 7.41 crore reports that were filed for the fiscal year 2023–2024. The department observed that there was a notable shift in the income ranges of individual taxpayers, with a notable increase in the gross total income brackets of Rs 5-10 lakh and Rs 10-25 lakh. They did, however, clarify that people who make less than the taxable threshold and are not required to submit forms are included in the gross total income up to Rs 5 lakh.

Additionally, the CBDT noted that from 15.9 percent in AY 2013–14 to 14.6 percent in AY 2021–22, the top 1 percent of individual taxpayers' proportionate share of gross total income had declined. On the other hand, over the same time period, the proportionate contribution of individual taxpayers in the bottom 25% climbed from 8.3 to 8.4 percent.

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Income Tax Returns in India Show Changing Patterns and Income Inequality
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