Income Tax Returns Reveal Shifting Trends and Income Inequality in India

October 30, 2023

The recently released income tax return statistics for the assessment years 2019-20 to 2021-22 by the Income Tax Department shed light on significant changes in taxpayer compliance and income distribution. This data also highlights a concerning trend: a substantial number of individuals who are now within the tax net fail to file their tax returns, raising concerns among policymakers.

Rise in Tax Filings

In the assessment year 2021-22 (financial year 2020-21), a total of 6.75 crore taxpayers filed their income tax returns, marking a 5.6 percent increase from the previous year’s 6.39 crore filings. Additionally, around 2.1 crore taxpayers paid taxes but did not file returns, indicating a persistent issue.

Widening Tax Base

The Income Tax Department countered claims of income inequality by revealing that individual taxpayer returns increased by a remarkable 90 percent over the nine-year period from Assessment Year 2013-14 to 2021-22. This surge signifies the expansion of the taxpayer base, attributed to various measures taken, and reflects robust growth in the gross total income of individuals across different income groups.

Key Findings in Tax Data

Taxpayer Demographics: Out of the 6.75 crore taxpayers in AY 2021-22, 4.46 crore paid nil taxes, while approximately 2.1 crore taxpayers paid taxes without filing returns. This trend has remained largely constant over the years.
Rising Taxpayer Numbers: The total number of taxpayers has shown a consistent increase, rising from 5.87 crore in AY 2018-19 to 6.75 crore in AY 2021-22.
Taxpayers with Nil Tax: The percentage of taxpayers paying nil taxes increased from 40.3 percent in AY 2018-19 to 43.1 percent in AY 2019-20, peaking at 67.3 percent in AY 2020-21, before moderating to 66 percent in AY 2021-22.
Individuals Paying Nil Tax: The number of individuals paying nil tax grew from 2.23 crore in AY 2018-19 to 4.28 crore in AY 2021-22. Similarly, companies paying zero tax also increased from 3.73 lakh to 5.08 lakh during the same period.

Income Trends Among Salaried IndividualsIn AY 2021-22, around 6.36 crore individuals filed income tax returns, representing over 94 percent of all taxpayers. The majority fell into the zero salary income category (3.25 crore individuals), followed by those with incomes between Rs 5.5-9.5 lakh (94.52 lakh individuals) and Rs 10-15 lakh (32.46 lakh individuals).

Income Inequality Concerns

Critics, including the Congress, have raised concerns about income inequality based on this data. They pointed out that the top 1 percent of income tax payers went from earning 17 percent of all income in 2013-14 to 23 percent in 2021-22. The income growth of the ultra-rich outpaced that of the middle class, with the top 1 percent seeing their income grow 60 percent faster than the lowest 25 percent of taxpayers.

Tax Department’s Perspective

The Central Board of Direct Taxes (CBDT) responded by revealing that around 7.41 crore returns were filed for AY 2023-24, including 53 lakh first-time filers. The department noted that individual taxpayers were migrating to higher income ranges, with significant growth in the gross total income brackets of Rs 5-10 lakh and Rs 10-25 lakh. However, they clarified that the gross total income up to Rs 5 lakh includes individuals below the taxable limit who may not file returns.

The CBDT also emphasized that the proportionate contribution of gross total income from the top 1 percent of individual taxpayers had decreased from 15.9 percent in AY 2013-14 to 14.6 percent in AY 2021-22. Conversely, the bottom 25 percent individual taxpayers’ proportionate contribution had increased from 8.3 percent to 8.4 percent during the same period.

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