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Indian income tax payers now account for almost half of the eligible population
February, 02nd 2016

The recent news report that the income tax authorities have brought 12 lakh additional tax payers into the income tax net was met with a lot of scepticism. This is because most people believe the widely accepted notion that just a meagre 30 million plus of the Indian population of 1210 million pay income taxes which is just about a 3% of the full base.

But these numbers distort the real picture that shows almost 44% of the eligible population in India pays income taxes to the government. This is best brought out by using the population figures provided by the 2011 census which provide the best data base to calculate the share of people eligible to pay income tax in the country.

According to the decennial census the total population of India was 1210 million and the total income tax payers in the financial year 2011-12 was 35.7 million. However, it will be wrong to calculate the share of income tax payers as a part of the total population as huge numbers lie very much outside the gambit of income tax laws.

One way of identifying the size of the population eligible to pay income taxes is to look at the working age group in the total population which includes the entire spectrum of income earners from daily wage workers, to professionals and businessmen. This is because the working age group excludes the very young and the very old who are unlikely to earn incomes which bring them into the income tax net. Though the retired workers do very often have a relatively higher level of income and wealth the liberal tax rules and a bit of tax planning will put most of them outside the income tax net.

So the population eligible to pay income tax are usually those who participate in the production process which the Indian census estimates to be all in the 15-59 age category who number around 481 million. However not all these numbers would fall into the income tax net because certain categories like agriculturists who number around 188 million would not come under the income tax net.

We also have to add to this other non-eligible categories like the 144 million agriculture workers and 18 million household workers whose earnings would be too low to be taxed. That would mean reducing the base of the population liable to pay income taxes by as much as 281 million which will reduce the income tax base from 481 million to just 200 million

But even this is too large a number because the estimates show that as much as 58% of India’s working population earn less than $ 2 day and are below the poverty line. Called working poor their numbers would total 116 million and removing them from the category of eligible income tax payers would further bring down the numbers eligible to pay income tax to just 84 million.

Since the total number of income tax payers in 2011-12 was 35.7 million it would mean that the share of income tax payers would now actually go up to as much as 44% of the eligible population. This is a respectable figure given that only around one tenth of the Indian workforce works in the organised sector.

In fact the real share of the eligible person would be much higher and be close to half if one accounts for the fact that a sizable proportion of the 15-59 age group defined as the productive workforce in the census would be still earning much below the minimal amounts liable to be taxed even though they are above the poverty line.

This indicates that the income tax department has been singularly successful in extending the income tax base much beyond the limits of the organised sector workforce to catch the rich in the unorganised sector and other wealthy groups. All this only shows that it is time to put an end to belittle the achievements of the income tax department and deny them their rightful dues.

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