The recent release of income tax data sheds light on the stark income distribution disparity in the country, indicating that only a minute fraction of the population effectively pays taxes. Here’s a breakdown of the key points:
-
Low Number of Taxpayers: The data reveals that only a small percentage of individuals actually pay income tax. For instance, in FY2020-21, out of 7.4 crore individuals who filed tax returns, about 67.3% paid nil tax, while 10.3% had taxable incomes above Rs 9.5 lakh. Only a mere 0.68% of the population were categorized as “really well off” who effectively paid income tax, and a minuscule 0.016% declared an income above Rs 1 crore.
-
Skewed Income Distribution: Those within the tax net represent the upper echelon of the income ladder in the country. Even though they may not all pay taxes, their inclusion in the tax net indicates their relatively high income status. However, the actual income of these individuals might be significantly higher than what’s declared due to various factors such as income splitting among family members and underreporting of income.
-
Black Income Generation: The wealthy, especially businessmen and professionals, often resort to underreporting their income to evade taxes. This contributes to a significant portion of the income distribution being underestimated in official data. Black income generation further exacerbates the skewedness of income distribution.
-
Tax Compliance: Despite claims of improving tax compliance, the data suggests otherwise. While the number of tax return filers has increased over the years, this can largely be attributed to inflation rather than a genuine increase in tax compliance. Many new entrants into the tax net either file nil returns or are exempt from tax, leading to little impact on the tax to GDP ratio.
-
Tax Collection and GDP Ratio: The direct tax collection as a percentage of GDP remains relatively low, hovering around 5.5% to 6% since 2014-15. This indicates that the increase in the number of tax filers hasn’t translated into a significant rise in tax revenue relative to the size of the economy.
In conclusion, the income tax data underscores the persistent issue of income inequality and tax evasion in the country. Despite efforts to improve tax compliance, the system continues to grapple with challenges such as underreporting of income and black money generation, leading to a skewed distribution of income and a relatively low tax to GDP ratio.
https://fintaxbytes.com/
