“Less than 1% of Indians pay Income Tax” is the statement of many. It is like saying 99% of Indians do not pay taxes!

What percentage of Indians are expected to pay income tax?

D.R. Sarath Kanan

As per 2011 census:
Total Population = 121 Crores
Total Working Population = 48.1 Crores; i.e. 39.8% of total population
Total Cultivators = 11.8 Crores; i.e. 24.6% of working population or 9.8% of total population
Total Agricultural Labourers = 14.4 Crores; i.e. 30% of working population or 11.9% of total population
Total Household Industry Workers = 1.8 Crores; i.e. 3.8% of working population or 1.5% of total population
Total Other Workers = 20 Crores; i.e. 41.6% of working population or 16.5% of total population
Total Marginal Workers = 11.9 Crores; i.e. 24.8% of working population or 9.9% of total population
Total no. of effective Tax Assessees for AY 2011-12 (or FY 2010-11) = 4.4 Crores; i.e. 3.6% of total population

Cultivators and Agricultural Labourers are exempt from income tax.

Household Industry is defined as an industry conducted by one or more members of the household at home or within the village in rural areas and only within the precincts of the house where the household lives in urban areas. The larger proportion of workers in the household industry consists of members of the household.
Most people in this category harldy make a sustainable living, it is safe to assume that people in this category do not have income that would be taxable and hardly file their IT returns.

Other Workers is defined as – All workers, i.e. those who have been engaged in some economic activity during the last one year, but are not cultivators or agricultural labourers or in household industry, are other workers. The type of workers that come under this category include all government servants, municipal employees, teachers, factory workers, plantation workers, those engaged in trade, commerce, business, transport, banking, mining, construction, political or social work, priests, entertainment artists, etc..

We can now see that “Other Workers” are the ones we expect to pay taxes. This is 16.5% of the total population.

However, this number also includes Marginal Workers. By definition, Marginal Workers are the ones who are employed for less than 6 months of which nearly 20% work less than 3 months. It is safe to assume that people in this category do not have taxable income and hardly file their IT returns. This number is 9.9% of total population.

If this number is subracted from Other Workers, the percent of total population expected to pay tax will be 6.6%; just 3% more than the no. of Tax Assessees.

However, there is a possibility that majority of Marginal Workers could be Agricultural Labourers. Assuming 80% of the Marginal Workers to be Agricultural Labourers, percentage of Marginal Workers (not from agricultural labour) to total population will be 2%.

Now, the percent of total population expected to pay tax will be 14.5%.
Of this 3.6% have already are part of the tax net. The gap to bridge is 10.9% of the population and NOT 99% of population as it is made out.

Also, it doesn’t mean that the rest do not pay any tax. They conribute to tax revenue whenever they go shopping – whether daily essentials or luxury items.

Also, there is another statistic that richest 1% of population owns 58.4% of country’s wealth and richest 10% own 80.7% of the wealth. Considering this too, the 3.6% of people paying IT is not a huge deficit.

Govt. should focus on how to eliminate this difference which would automatically increase the number of Tax Assessees.
In order to spread the wealth across the entire population, the focus should shift from corporatisation to a large number of small enterprises.

Sources:
http://www.censusindia.gov.in/2011census/PCA/PCA_Highlights/pca_highlights_india.html

http://www.censusindia.gov.in/2011census/PCA/PCA_Highlights/pca_highlights_file/India/5Figures_at_glance.pdf

http://rural.nic.in/sites/downloads/IRDR/3.%20Economic%20Profile.xls

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