Did you know that only 1-2% of India’s people pay income tax? They make up to 27% of the country’s tax income. In 2022-23, 5.16 crore people filed tax returns, but 70% of them didn’t owe any taxes. Only 2.24 crore paid taxes, making up just 1.6% of the population.
The Finance Minister says the low tax base is due to making tax processes more efficient. But tax experts say the system is unfair and hits the poor hard.
Create an image that visually represents the overwhelming majority of Indians who do not pay income tax in 2024. Show the stark contrast between the small percentage of taxpayers and the larger population, using color or other visual elements to emphasize this disparity.
Key Takeaways
- Only 1-2% of Indians pay income tax, yet they contribute 27% of the country’s total tax collections.
- In 2022-23, 70% of the 7.4 crore individuals who filed income tax returns had zero tax liability.
- The number of income taxpayers in India is just 1.6% of the total population.
- The government’s efforts to increase tax compliance have not significantly expanded the tax base.
- India’s income tax system is considered unfair and regressive, with a small percentage of the population bearing the majority of the tax burden.
Also Read: Update Your Basic Income Tax Knowledge: Ultimate Guide 2024
India’s Shockingly Low-Income Tax Base
Only about 3% of people in India pay income tax. This is much less than in countries like France, the USA, Germany, and the UK, where 50% to 78% of people pay taxes. The Economic Survey of 2015-16 suggested that India should have six times more income taxpayers, at 23% of the population.
Understanding the Income Tax Filing Statistics
Many people in India work in the informal sector and don’t report their income. Also, government policies, like raising the tax exemption limit, make more people not have to pay taxes2. The tax exemption limit is currently Rs 3 lakhs and 2.5 lakhs, confusing taxpayers.
About 31% of India’s population is middle class and pays around Rs. 10 lakh crore in income tax. However, this middle class lacks social security and has trouble getting a good education and health.
India’s tax system is different from countries, like Singapore, China, Russia, and the United States in many ways. People with income below Rs 7 lakhs and those earning, over Rs 5 crores pay little to no tax. Central government employees can deduct up to 14% of their salary for NPS, while private employees can deduct up to 10%.
The government is working on promoting electric vehicles and building more charging stations. People expect tax deductions to increase for things like section 80C and home loan interest. Senior citizens want more deductions for small saving schemes and shorter lock-in periods for investments.
Indian Tax System
India’s tax system is different from countries like Singapore, China, Russia, and the United States in many ways. People with income below Rs 7 lakhs and those earning over Rs 5 crores pay little to no tax. Central government employees can deduct up to 14% of their salary for NPS, while private employees can deduct up to 10%.https://www.youtube.com/embed/aBge6QnKI04
The government is working on promoting electric vehicles and building more charging stations2. People expect tax deductions to increase for things like section 80C and home loan interest. Senior citizens want more deductions for small saving schemes and shorter lock-in periods for investments.
Also Read: Capital Gains Budget Impact: Ultimate Guide to Tax on Property
Income Tax 2024: Challenges and Inequities
India’s low-income tax base affects its fiscal policies and social welfare. Only 3% of Indians pay income tax. This means the government uses taxes like the Goods and Services Tax (GST) a lot. This puts a big tax burden on the poor, making things like food and clothes expensive.
The income tax system in India is unfair. It treats salaried workers and pensioners differently, making them pay more taxes. The new tax rules for 2024 have different tax rates, from nothing for income up to Rs.3 lakh to 30% for more than Rs.15 lakh. This could save people up to Rs.17,500.
Having a small number of people paying taxes limits the government’s ability to make good policies. The 2024 Budget focuses on jobs, skills, small businesses, and the middle class. It aims to help the poor, women, young people, and farmers.
Tax Expert’s Review
Tax experts say a big review of the Income Tax Act is coming soon. This could make taxes clearer and simpler. It might fix the problems and unfairness in the current system, making taxes fairer in India.
“The reliance on a narrow income tax base limits the government’s ability to design effective policies and invest in critical areas like defense, infrastructure, and social welfare.”
| Tax Bracket | Tax Rate |
|---|---|
| Income up to Rs.3 lakh | NIL |
| Income between Rs.3 to Rs.7 lakh | 5% |
| Income between Rs.7 lakh to Rs.10 lakh | 10% |
| Income between Rs.10 lakh to Rs.12 lakh | 15% |
| Income between Rs.12 lakh to Rs.15 lakh | 20% |
| Income exceeding Rs.15 lakh | 30% |
Direct Tax Collections Data and Truth of the Indian Economy
Visualizing a chart of tax Collections and Refund distribution indicates our country’s respective growth of tax collections from various tax collection segments. This is a very positive side of the Indian economy.
In this context, I share something surprised to know that last year 2023 our country is paying interest above 9 lakh crore rupees Now you won’t even understand whether 9 lakh crore rupees is too much or too less. So, let me tell you that the revenue of our country comes from income tax As per last year data It incurred more interest In our country. The collection that comes through income tax throughout the year is approc 8 lakh crore rupees but our country pays interest of 9 lakh crores which will give you an idea of how big this amount is.
Sources Study at home
Further, we come back to our main topic, India’s low-income tax base affects more than just money matters. Experts suggest giving tax breaks for life insurance to help the insurance industry. They also want to lower GST on insurance plans and give more tax breaks for foreign investors.
There are also ideas to increase tax exemptions for home loans to help the real estate market. And, to give more tax benefits for pension products to encourage saving for retirement.
Overall, India’s income tax system needs a big change for it to be fair and support the country’s growth.
Government Efforts to Enhance Compliance
The Indian government is working hard to make sure more people file their taxes. They’re doing this by making TDS and TCS cover more things like big cash withdrawals and luxury car buys.
Now, everyone can file their taxes online. This makes it easier and faster. Also, if you don’t file on time, you’ll pay more in TDS.
Leveraging the GST Database
The government uses the GST database to find people who don’t pay their taxes. This has helped increase tax money coming in.
But, this has also meant more people get refunds. This is because they paid TDS or TCS but then didn’t owe any taxes after using tax-saving investments.
| Fiscal Year | Gross Personal Income Tax Collections (in ₹ lakh crore) |
|---|---|
| 2020-21 | 5.75 |
| 2021-22 | 7.10 |
| 2022-23 | 9.67 |
| 2023-24 | 12.01 |
The government is always working to make sure people pay their taxes. Everyone needs to know the latest rules and how to save on taxes. Together, we can make the tax system fairer and more open in India.
An image of a small group of people surrounded by a large crowd symbolizes the 3% of Indians who pay income tax compared to the 97% who do not. The small group is carrying heavy bags of money, while the larger crowd is empty-handed and looking on with envy. The overall mood of the image is gloomy and unsettling, highlighting the need for increased government efforts to enhance compliance.
“The government’s commitment to enhancing tax compliance is a crucial step towards a more inclusive and sustainable tax system in India.”
Conclusion
India’s income tax system has big challenges. Only 3% of people pay taxes. The government is trying to get more people to file taxes, but it’s hard. The tax collection has gone up, from ₹5.75 lakh crore in 2020-21 to ₹12.01 lakh crore (provisional) in 2023-24. This shows we need a new way to think about taxes.
Budget 2024-25 made some changes, like new tax brackets and more standard deductions. But, the tax burden is still on salaried workers and pensioners. Experts suggest looking into an expenditure tax to make taxes fairer.
For India to grow and help everyone, we need a fairer tax system. The government is making the tax system simpler and encouraging people to file taxes on time. But, we need deeper changes to make taxes fairer and increase tax money for growth and development.
FAQ
What is the current income tax situation in India?
Only about 1-2% of Indians pay income tax, making up 27% of all taxes. In 2022-23, 5.16 crore people filed returns but had no tax to pay. Only 2.24 crore paid income tax.
How does India’s income tax base compare to other countries?
India has a very low-income tax base, with just 4% filing returns. This is much lower than in countries like France and the USA, where 50% to 78% of people file taxes.
What are the implications of India’s low-income tax base?
India’s low tax base affects its finances and social welfare. It makes the government rely on regressive taxes like the GST. This puts a heavy burden on the poor.
What measures has the government taken to increase tax compliance?
The government has expanded TDS and TCS, made online returns mandatory for refunds, and raised TDS for non-filers.
What are the challenges and inequities in India’s income tax system?
India’s tax system unfairly targets salaried workers and pensioners with TDS and TCS. Many people aren’t taxed at all. This makes the tax burden unfair and limits government revenue.
Source Links
- https://theprint.in/economy/more-indians-filing-tax-returns-but-only-1-2-of-population-actually-pays-income-tax-shows-govt-data/1686818/ – More Indians filing tax returns but only 1-2% of the population pays income tax, shows govt data
- https://timesofindia.indiatimes.com/business/india-business/budget-2024-income-tax-expectations-raise-basic-exemption-limit-standard-deduction-and-nps-benefits-for-taxpayers/articleshow/111856310.cms – Budget 2024 income tax expectations: Raise basic exemption limit, standard deduction and NPS benefits for taxpayers – Times of India
- https://www.ndtv.com/opinion/can-budget-fy25-meet-the-expectations-of-a-restless-middle-class-6159542 – Opinion: Opinion | Budget 2024: Don’t Ignore The Tax-Squeezed Middle Class, Again
- https://cleartax.in/s/budget-2024-live – Budget 2024 Live Updates: Changes in Tax Structure, Deductions, and Economic Policies
- https://m.economictimes.com/wealth/tax/income-tax-budget-2024-tax-expectations-standard-deduction-hike-new-income-tax-slab-changes-pmay-finance-minister-nirmala-sitharaman-latest-news-19-july-2024/liveblog/111854099.cms – Income Tax Budget 2024 Expectations Highlights: Tweak in tax slabs in new income tax regime, hike in standard deduction — mega tax relief in Budget? – The Economic Times
- https://pib.gov.in/PressReleasePage.aspx?PRID=2035918 – Celebrating Income Tax Day 2024: A Journey of Transformation
- https://pib.gov.in/PressNoteDetails.aspx?NoteId=151961&ModuleId=3 – Ministry of Finance
- https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/jul/doc2024723352601.pdf – PDF
- https://www.bajajfinserv.in/investments/income-tax-slabs – Income Tax Slab for FY 2024-25 – New Vs Old Tax Regime
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