Income Tax Data: Income Mobility Of India’s Rich Is On the Climb

India's income mobility has grown post-pandemic due to detailed tax data collection by the tax department and strong economic growth, according to tax analysts.

In FY23, individual tax filers who disclosed an income below Rs 5 lakh per annum stood at 4.65 crore, making it the highest category of tax filers, income tax data showed. The category that disclosed income above Rs 5 lakh per annum but below Rs 10 lakh was the second highest, standing at 1.1 crore tax filers. The highest tax-paying income range of Rs 1 crore had 1.69 lakh individuals.

More people have entered the taxable income and higher income slab categories because of better compliance and data collection through annual income statements, data collection by survey and other means linked to deductions claimed, and strong economic growth in the country, with an increasing push towards digitisation in the economy post-Covid, according to tax analysts.

The growth in the number of taxpayers in the income bracket above Rs 50 lakh has been the highest compared to other income brackets.

Prior to the pandemic, this stood at 3.42 lakh tax filers before taking a hit during the pandemic to 2.63 lakh filers. This rose to over 5 lakh tax filers in FY23.

There could be a combination of factors behind the rise in tax filers, from better data collection to more compliance measures that necessitate declaring all sources of income, according to Kuldip Kumar, partner at Mainstay Tax Advisors LLP.

"It could be a combination of various factors, viz., the government now having easy access to all the financial details of tax payers, including overseas financial assets, by virtue of an information sharing agreement with a number of countries," he said.

He also notes that the growth of the Indian capital market since the pandemic period also adds to the statistic, as it would have benefited the high-net-worth individuals who had investments in stocks or mutual funds.

However, this is still not an accurate picture of high-net-worth individuals, according to Kumar.

"...The number of taxpayers in that category, nearly 5 lakh (in FY23), may still not satisfy the government, as against the number of luxury cars running on Indian roads and the individuals undertaking foreign travel," he said.

Only a little over 5 lakh individual return of income filers during FY23 have disclosed income above Rs 50 lakh, says Bahroze Kamdin, partner, Deloitte India.

"The number of such filers has grown post-pandemic years, and their share of the sum of the gross total income of all individual filers has also grown. However, it is still minuscule, at just around 0.77% of total individual filers during FY23," she said. 

Kumar expects that the government will use the latest technologies and automated processes with the aid of artificial intelligence to tighten compliance.

"We are already seeing the salaried class getting notices, where there is suspicion of fake claims in the returns. We may see further growth in these income brackets going forward too, because of the tightening of compliance and India's growth story in the times to come," Kumar of Mainstay Tax Advisors said.

Zero-return filers are those who have nil tax liability but are mandated to file their returns in line with the reporting norms of the department.

Under the old tax regime, the laws allowed a tax rebate for those earning below Rs 5 lakh, making their effective tax liability nil. This rebate has now been extended to include those who earn below Rs 7 lakh per year without any deductions under the new tax regime.

Prior to the pandemic, this category of filers stood at 4.63 crore. However, during the pandemic, the number of filers under this category rose by over 14.5% to 5.31 crore, before settling at 4.65 crore in FY23.

Factors contributing to the rise of zero-return filers include the provision introduced in FY20, where even when one's income is below the taxable threshold, he or she is required to file a return of income.

The department has mandated filing in instances where one is spending more than Rs 1 lakh on electricity consumption in a year or has spent over Rs 2 lakh on foreign travel, even if the individuals have income below the taxable threshold, Kumar said.

Individuals are mandated to file returns even if they want to claim the refund of the tax deducted at source for the interest received on fixed deposits and similar transactions through the requisite form 15G/15H, Kumar said. This is mandatory again, even in cases where the income is below the taxable threshold.