Why new tax filing data shows better compliance, upward mobility in higher-income slabs

Opposition leaders had pointed out the widening gap between the ultra-rich and the middle class based on ITR data. Subsequently, the tax department issued a detailed statement Thursday stating that returns filed by individual taxpayers increased by 90 per cent over the nine-year period of Assessment Year 2021-22 (financial year 2020-21) to AY 2013-14. The tax department called it as an indication of the widening of tax base due to measures taken, adding that there is a “robust growth in the gross total income of individuals across different income groups”.

The detailed income tax statistics based on assessment-year linked return filings comes after a long gap and hence, data for three years (AY2019-20 to AY2021-22) have been released together, even though some data had been made public as part of responses to questions in Parliament earlier.

What do the latest tax returns data show?

A total of 6.75 crore taxpayers including individuals, companies, Hindu Undivided Families (HUFs) and Association of Persons (AOPs) filed income tax returns in assessment year 2021-22 (financial year 2020-21), posting a rise of 5.6 per cent from 6.39 crore taxpayers in the previous year.

Out of the 6.75 crore, 4.46 crore taxpayers paid nil tax in AY 2021-22. Additionally around 2.1 crore taxpayers paid taxes but did not file returns.

Barring AY 2020-21, when the number of taxpayers who paid taxes but did not file returns dipped to 1.59 crore, taxpayers in this segment have broadly remained constant at 2.1 crore during AY 2018-19 to AY 2021-22.

Overall number of taxpayers has seen a significant increase over the last few years, rising from 5.87 crore in AY 2018-19 to 6.69 crore in AY 2019-20 to 6.39 crore in AY 2020-21 and 6.75 crore in AY 2021-22.

However, among the overall taxpayers, the share of taxpayers paying nil tax has also increased over the years from 40.3 per cent in AY 2018-19 to 43.1 per cent in AY 2019-20 and 67.3 per cent in AY 2020-21, after which it moderated to 66 per cent in AY 2021-22.

Individuals who paid nil tax have increased from 2.23 crore in AY 2018-19 to 2.74 crore in AY 2019-20, 4.14 crore in AY 2020-21 and 4.28 crore in AY 2021-22. Companies that paid zero tax have also increased from 3.73 lakh in AY 2018-19 to 3.92 lakh in AY 2019-20, 4.64 lakh in AY 2020-21 and 5.08 lakh in AY 2021-22.

What does the ITR data show for salaried individuals?

Around 6.36 crore individuals filed income tax returns in AY 2021-22, constituting over 94 per cent of the overall 6.75 crore taxpayers in the country. Among salaried individuals, the highest share of taxpayers is in the category of zero salary income (3.25 crore individuals), followed by the salary income bracket of Rs 5.5-9.5 lakh (94.52 lakh individuals) and Rs 10-15 lakh (32.46 lakh individuals). Other key numbers show:

The highest rate of growth for salaried individual taxpayers was seen in the income slabs of Rs 15-20 lakh and Rs 20-25 lakh in financial year 2020-21, which posted a year-on-year increase of 13.9 per cent and 12.4 per cent, respectively.

Income tax data for salaried individuals.

In comparison, the lower-income slabs of Rs 10-15 lakh and Rs 5-10 lakh recorded a growth of 4.9 per cent and 2.6 per cent, respectively. The financial year 2020-21 was the year affected by the impact of Covid-19 pandemic.
However, over the last four years from Assessment Years 2018-19 to 2021-22 or financial year 2017-18 to 2020-21, the income bracket of zero-Rs 5 lakh was showing a decline till the time of pandemic when the numbers again increased. To assess the post-pandemic trend, detailed data for AY 2022-23 (FY 2021-22) will be crucial, which has not yet been released by the Central Board of Direct Taxes (CBDT).

Around 67,970 individuals in India disclosed salary income over Rs 1 crore in assessment year 2021-22 (financial year 2020-21), the year affected by the Covid-19 pandemic, an increase of 3.9 per cent from 65,446 individuals in AY 2020-21.

Out of this, 16 individuals had salary between Rs 100-500 crore during AY2021-22 (financial year 2020-21), compared with 8 individuals in the same income bracket during AY 2020-21 (FY20) and 20 individuals during AY 2019-20 (FY19), the latest detailed income tax return statistics for assessment years 2019-20 to 2021-22 showed.

What has been the criticism about income trends being reflected in ITRs?

The Congress had questioned the widening gap between the ultra-rich and the middle class. In a post dated October 23 on social media platform X, formerly Twitter, Congress leader Jairam Ramesh had said analysis of tax data between 2013-14 to 2021-22 points towards increasing income inequalities.

“The top 1 per cent of income tax payers made 17 per cent of all income in 2013-14. By 2021-22, the top 1 per cent made 23 per cent of all income. Further, the income growth of the ultra-rich was much faster than for the middle class. The top 1 per cent of income tax payers saw their income grow at 13 per cent year-on-year from 2013-14 to 2021-22 — a massive 60 per cent faster than the income of the lowest 25 per cent of taxpayers,” he said.

After adjusting for inflation, the lowest 25 per cent taxpayers took home less real income in 2022, than in 2019. Gross income of the lowest 25 per cent fell by 11 per cent, from Rs 3.8 lakh crore in FY19 to Rs 3.4 lakh crore in FY22, Ramesh said. The real income of the top 1 per cent jumped 30 per cent from Rs 7.9 lakh crore in FY19 to ₹10.2 lakh crore in FY22, he added.

What has the tax department said?

Around 7.41 crore returns have been filed for AY 2023-24 till date during the current fiscal, including 53 lakh new first time filers, it said. The number of returns filed by individual taxpayers increased by 32 per cent from 2.62 crore in AY 2013-14 to 3.47 crore in AY 2021-22, while in the range of gross total income of Rs 5-10 lakh, and Rs 10-25 lakh, the returns filed by individual taxpayers registered an increase of 295 per cent and 291 per cent from AY 2013-14 to AY 2021-22, respectively, it said.

“This indicates that individual taxpayers are showing a positive trend of migration to a higher range of gross total income,” it said. The Department, however, clarified that the range of gross total income upto Rs 5 lakh includes individuals having income below taxable limit who may not be filing returns.

The CBDT in its statement also said the “proportionate contribution of gross total income of top 1 per cent individual taxpayers vis-à-vis all individual taxpayers has decreased from 15.9 per cent in AY 2013-14 to 14.6 per cent in AY 2021-22″.

Also, the proportionate contribution of gross total income of bottom 25 per cent individual taxpayers vis-à-vis all individual taxpayers has increased from 8.3 per cent in AY 2013-14 to 8.4 per cent in AY 2021-22, it said. “The increase in average gross total income for top 1 per cent individual taxpayers is 42 per cent while that for bottom 25 per cent individual taxpayers is 58 per cent,” the CBDT said.

In an earlier reply in Parliament in March, the government had shared data which showed that for a total of 6.94 crore taxpayers in the financial year 2020-21, the year affected by the Covid-19 pandemic, 7.6 per cent or 48.4 lakh individual taxpayers were in the topmost 30 per cent tax slab in the country. In the following fiscal, individual taxpayers in the 30 per cent tax slab increased to 60.81 lakh.