01/02/2017 6:32 PM IST | Updated 01/02/2017 7:49 PM IST

Now, Less Than 1% Of Indians Are Going To Have To Pay Income Tax

With new tax breaks in the budget, the number of people who pay income tax will fall by over 70%.

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Less than 30% of income-tax assesses--or just 1.05 crore people--will effectively be paying income tax from now. This means that less than 1% of the country will pay income tax.

Following Finance Minister Arun Jaitley's decision to reward tax-compliant individuals and firms with tax breaks after demonetisation, people with incomes under Rs4.5 lakh could effectively pay zero tax; FM Jaitley halved the tax rate for individual assesses with incomes of between Rs2.5 lakhs and Rs5 lakhs to 5% from 10%, while for everyone else under Rs 5 lakh, the tax liability would reduce to either 0 or 50% of their existing liability.

In assessment year 2014-15 (financial year 2013-14), 36.5 crore individual assessees filed returns, according to data published by the Income Tax Department. Of these, 25.98 crore, or 71.4%, had a gross total income of under Rs4.5 lakh each. The proportion was similar the previous year.

The vast majority of those who pay tax make under Rs5 lakh per year. Just 24 lakh people made over Rs 10 lakh, and just 48,417 people made over Rs 1 crore.

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Despite being few in number, these individual contribute a massive share of the total gross income declared. At the highest end, just seven people have an average gross income of Rs12,000 crore, which is 250,000 times the average income of everybody else in the country.

These figures match with household surveys on income; the National Council for Applied Economic Research's India Human Development Survey found that a per capita income of Rs1.63 lakh in 2012 put you in the top 1% of the country.

There is, of course, the distinct likelihood that many at the higher end of the spectrum are under-reporting their incomes. As FM Jaitley pointed out, just 24 lakh people declared an annual income of over Rs10 lakh in 2015-16, while 1.25 crore cars were sold in the last five years and 2 crore people flew abroad for business or tourism in 2015. "From all these figures we can conclude that we are largely a tax non-compliant society," FM Jaitley admitted.

Moreover, these numbers cover income tax only. Indirect taxes make up over 65% of tax collection, and tax the poor as well for goods and services they consume. Paying next to no income tax is not the same as paying no tax.