Proportion of return filers at lower levels of income declining

Proportion of return filers at lower levels of income declining

Number of individuals reporting an annual income of more than Rs 10 lakh has risen by 21 per cent

The Central Board of Direct Taxes may(CBDT) celebrate the arrival of “acche din” with the latest in come tax returns data showing a 23.5 percent increase in the number of individuals reporting an annual gross total lincome of over Rs 1crore to  59,830.But it may also need to closely examine the rapid decline in the number of returns by individuals who a reat the lower ranges of reported income.

This raises questions on the efficacy of the government´s drive towards filing of more returns by individuals and on whether raising tax exemption levels has led to reduced compliance in filing of returns by those who go out of the tax net.In 2012-13, the share of returns by individuals declaring an annual gross total income of less than Rs 2.5 lakh was 43 percent of the 33.58million returns filed that year.

In the following year, the last year of the Manmohan Singh government, that share declined to37 percent of the 36.51million returns filed.And during 2014-15, the first year of the Modi government, the share of such returns dropped to a low 20 percent of the 40.73million returns filed by individuals. The absolute numbers a reeven more startling.

Individuals with an annual gross total income of less than Rs 2.5 lakh filed14.71 million returns in 20121-3.The figures for 2013-14 and 2014-15 were13.71 million and 8.19million, respectively, showing a dropof percent and a whopping 40 percent.

The decline during this periodis also noticeable in each of the four subcategories of anannual gross total income of below Rs 2.5lakh.The number of returns has been steadily declining even for those individuals who declared zero income, those who earned less than Rs1.5 lakh, those who earned between Rs1.5 lakh and Rs 2lakh and also those who reported an income between Rs 2lakh and Rs2.5lakh.

These numbers have been released by the CBDT through its latest report on income tax return statistics for the 2015-16 assessment year.An assessment year captures income earned in the previous year. Gross total income is what taxpayers report to the income tax authorities in their annual returns and this amount includes salary, income from house property, income from business/profession, capital gains, and income from other sources.

Tax experts point out that this sharp decline could beat tributed to two factors.One, many individuals may be graduating to the higher income ranges with every passing year.Indeed, almost all income ranges above Rs2.5lakh(bar ringa couple of high income ranges) have seen a steady rise in the number of returns in these three years.

For instance, the number of returns by individuals earning between Rs 2.5lakh  and Rs 5lakh in 2014-15stood at 21.45 million.This represented arise of 55 percent over 13.84 million returns filed by the same group of individuals in2013-14. Growth in returns filed by this group in2013-14 was just 20 percent over the previous year.According to such analysis, the decline in the number of returns in the category below Rs 2.5lakh has been more than made good by the rise in the returns filed under highe rincome categories.

In effect, this has improved the tax administration´s productivity with arise in revenue collections per return.The second factorcited by these tax experts is the government´s decision to raise the tax exemption level fromRs 1.8lakh to Rs 2lakh(Rs  2.5 lakh for those above 60 years of age) in 2012-13 and further to Rs2.5lakh(Rs 3 lakh for those above 60 years of age) in 2014-15. These decisions implied that a large number of individuals, including senior citizens, were no longer required to file returns as they fell below the tax exemption levelThat could be one reason for the decline in the number of returns among those who had annual gross total incomes of less than Rs 2.5lakh.

The challenge that the CBDT will have to grapple with in the coming days would be to prevent any further erosion in the tax returns baseas and when the government further raises the exemption levels.What needs to bed one to encourage individuals to continue filing returns will have to be examined.Tax experts admit that one of the pit falls of raising tax exemption levels is the loss of the tax base and taxpayers´data.

Growing middle: 2.95 mn Indians with income of over Rs 10 lakh

In sharp contrast to this decline in the number of returns from lower income earning individuals is the rise in the category of those who have been earning over Rs 1crore.Their number at 59,830 during2014-15 represented a jump of 23.57percent ove r48,417such individuals in 2013-14.

The increase stands out particularly because the numbe rof individuals with an annual gross total income of over Rs1crore grew at a much lower rate of 10 percent in2013-14, the last year of the Manmohan Singh government.

The latest data also provide interesting pointers to the reported income levels in India. For instance, how many individuals in this country are reporting an annual gross total income of over Rs 50lakh? The CBDT data reveal that in 2014-15 there were as many as176,741 individuals who reported an annual gross total income of over Rs 50lakh.

Significantly, their number went up by 20 percent over 147,232 such individuals in 2013-14. In 2012-13, this figure was 124,798, showing how the top income earners in India have been growing in this period.

The number of individuals reporting an annual gross total income of over Rs10 lakh was higher at 2.95 million in 2014-15. Compare that with the steadily rising numbers of such individuals( 2.44million in 2013-14and 2.02 million in 2012-13), you can get a sense of the forces of India´s growthi n the consumption of cars, two wheelers, and a host of white goods like refrigerators and airconditioners.Growth is a little higher at the lower end.

The number of individuals with an annual gross total income of over Rs 5 lakh in 2014-15 rose almost 24percent at 11.08million.In 2013-14, growth for this group, estimated at 8.95 million, was lower at 22 percent.This also underlines the skew in India´s income profile.India´s percapita in come in 2014-15 was only Rs 86,454, estimated by the Central Statistics Office, and the average household income was Rs 160,000, estimated by the Centre for Monitoring Indian Economy, or CMIE.

Long term capital gains

The CBDT numbers also have serious implications for the future treatment of capital gains from the taxation point of view.

Total long term capital gains reported by all tax payers rose to an estimated Rs 84,847 crore in 2014-15, a 31 percent rise over Rs 64,521crore in 2013-14. In2012-13, total long term capital gains were estimated at Rs 49,154 crore. However, companies have reported a much higher riseof 44 percent in their long term capital gain sat Rs 41,735 crore in 2014-15. The increase in 2013-14 was much higher at 75 percent with long term capital gains of Rs 28,899crore.

Individuals showed a lower level of long term capital gains of Rs 37,269 crore in 2014-15, recording a lower growth rate of 18 percent over Rs 31,631 crore in 2013-14. A similar trend of companies accounting for the largest chunk prevailed in respect of short term capital gains as well.If the government does indeed consider removing the concessional tax treatment for long term capital gains, companies will take a bigger hit

And even among individuals, the burden will be borne largely by those earning an annual gross total income between Rs1crore and Rs 5crore, who accounted for a boutone fourth of such gains in 2014-15. The CBDT data also show how individuals reported a much lower house property income of Rs 27,221crore, a decline of 39 percent over the previous year.The real estate slowdown seems to have adversely affected individual income growth also.

The Business Standard, New Delhi, 27th December 2017