Who is a “taxpayer”? This could well be an interesting segue to gauge an economy’s progress seen through people’s income levels. The income tax department defines a “taxpayer” as “a person who either has filed a return of income for the relevant assessment year (AY) or in whose case tax has been deducted at source in the relevant financial year but the taxpayer has not filed the return of income.”
For AY 2022-23, there were 93.7 million “taxpayers” in India. Of this, “individuals” and “Hindu undivided families (HUF)” accounted for more than 96 percent (90.37 million) of the total taxpayers in the country.
This translates into 6.45 percent of the population being taxpayers. But this can be fallacious. The more appropriate marker would be to leave the children out of this count. There are about 431 million children in India who are under 18 years of age. This would imply that of the 970 million adults in India, 9.3 percent pay income taxes.
Another way of measuring the taxpayers’ pool would be through the working age population (15-64) cohort. About 68 percent or about 952 million people in India are in the working age group. Of these, 9.48 percent are taxpayers.
Growth In Tax Base
A more appropriate question to ask would be: how has these numbers grown over years? The data throws up an interesting trend. On a point-to-point basis, the number of individual and HUF taxpayers in India has grown from 50.6 million in assessment year 2013-14 to 90.37 million in AY 2022-23, representing a 78 percent jump, over the past nine years.
That’s not the whole story. There are a significantly greater number of people reporting annual incomes of more than Rs 10 lakh now than 10 years ago. In 2013-14, there were 22,34,078 people who declared an annual income of more than Rs 10 lakh. In 2021-22, the latest for which data is available, there were 83,61,294 people with a declared annual income of more than Rs 10 lakh—a nearly four-fold jump.
While inflation could explain part of this rise in income levels, and a part by more toning of the tax administration nudging people towards more income disclosures, a substantial part of this growth in income levels is a reasonable proxy of upward mobility.
There are other markers too. Retail activity in stock markets can also serve as a reasonably good representation to spot mobility. In 2014, there were 21.83 million demat accounts in India. As of September 2023, there were 129 million demat accounts, a more than six-fold jump in less than 10 years.
How do you spot signs of an expanding economy? One of the surest signals can be found in shopping malls or neighbourhood shopping complexes or car showrooms. The footfalls in these have seen remarkable long-term growth over the past 15 years or so.
Let’s consider some numbers. In 2014 an estimated 2.5 million passenger vehicles were sold in India. In 2022, an estimated 3.8 million passenger vehicles were sold in the country. A majority of passenger vehicles in India are bought on loans for which income levels and tax compliances are necessary conditions. If more cars are being bought, and loans are driving these purchases, it only buttresses the economy’s wider and rapid formalisation driven by a rapidly expanding middle class fuelled by growing income and aspirations.
Improving Material Circumstances
Global brands are also beginning to make India an essential component of their China Plus One plans. Apple CEO Tim Cook, who recently visited India, has described it as an "incredibly exciting market" and a "major focus" for the company, as the Cupertino-based iPhone maker highlighted that business in India "set a quarterly record, grew very strong, double-digit year-over-year". India is at a "tipping point", he said during the Q2 earnings call of the company, where Cook mentioned India 20 times.
While consumption as India’s primary growth driver is well understood, there are a few other underlying trends that are emerging in India. One of these is urbanisation. In 2011 urban areas accounted for 31.2 percent of the population; it was 23.3 percent in 1981. By the time the next decadal census data comes along, India’s urban landscape would have changed dramatically – the biggest jump coming in the past decade.
This has been accompanied by a visible improvement in material circumstances such as the quality of transport and mobile phones of the population. Add to this the large villages that mimic the demographic characteristics of a town.
Rising incomes and better affordability have turned yesterday’s luxuries into today’s necessities, a sign of upward mobility, which the widening tax base and other numbers are mirroring.
Gaurav Choudhury is consulting editor, Network 18. Views are personal, and do not represent the stand of this publication.