By Hasmukh Adhia & Arvind Subramanian

Transparency is an essential instrument for achieving ‘Minimum Government, Maximum Governance’. This is especially true for income taxes. For a number of technical and other reasons, since 1999-2000, India had stopped publishing detailed income-tax data and stood out as an outlier amongst comparable countries. In order to rectify this anomaly and promote transparency, as well as to facilitate wider analysis, the government has decided to resume publication of this data but in greater scope and detail.

Accordingly, the Central Board of Direct Taxes (CBDT) has recently published comprehensive data based on income-tax returns filed for the assessment year 2012-13 that pertains to incomes of the previous financial year, namely, 2011-12.

We present here some highlights of the data, details of which can now be accessed at http://goo.gl/XgNYii. Data for subsequent years will be published periodically.

As Table 1 indicates, there are many types of taxpayers that fall into the category of individuals, Hindu Undivided Families (HUF), Association of Persons (AOP) and Body of Individuals (BOI), companies and firms. In what follows below, we will focus on individuals on the personal income-tax side and companies on the corporate-tax side as these are quantitatively the most important taxpayers.

>Number of tax filers/payers: In 2011-12, there were 2.9 crore filers of individual income tax and 5.8 lakh filers of corporate income tax. If we also include those whose tax was deducted at source (TDS) but didn’t file the return, we estimate that there were a total of 4.4 crore individual income-tax payers and 6.5 lakh corporate-tax payers. Thus, 3.7% of the population and 9.1% of the workforce were part of the individual income-tax system.

>Taxable income:Gross total incomes reported by individuals and corporates stood at Rs 12.14 lakh crore and Rs7.87 lakh crore, respectively. To put this in perspective, this represented about 22.9% of gross national income in 2011-12. That gives a broad sense of how much of economic activity was covered in the income-tax net (Table 2).

> Deductions: Returned income, however, was much less than total gross income with the difference representing deductions. For individual income tax, deductions amounted to Rs1.35 lakh crore, or 11.1% of total gross income of individuals; for corporate taxes, deductions amounted to Rs 0.56 lakh crore, or 7.1% of total gross income of corporates. Total tax foregone on all income taxes amounted to 0.4% of GDP (Table 2).

> Tax paid and effective tax rates: Actual individual income and corporate taxes paid amounted to Rs1.12 lakh crore and Rs2.21 lakh crore, respectively. This translates into an average effective tax rate of 9.2% for individuals and 28.1% for corporates (Table 2).

> Composition of tax income: For individuals, salary income represented 51.6% of total income while business income represented 33.45%. Capital gains and property income together accounted for 5.4% of total individual income.

Unsurprisingly, business income for corporates accounted for an overwhelming share (90.6%) of total corporate income (Table 2).

> Distribution of taxes and taxpayers: Turn next to the distribution of income taxes and taxpayers. In the assessment year 2012-13, the basic exemption limit was approximately Rs2 lakh and deductions under Section 80C were available up to Rs1lakh. Of 2.89 crore individual taxpayers who filed returns, 1.63 crore (56.4%) paid zero tax and 0.84 crore assessees (29.3%) were in the 10% tax bracket. Taken together, these two segments constitute more than 85.5% of the individual tax base, nearly half of the tax base. The top 30% tax bracket accounted for 4.6% of all assessees. There were 2,669 taxpayers with returned income exceeding Rs5 crore who accounted for 9.6% of all taxes paid (Table 3).

A similar analysis of companies shows that out of 5.81lakh returns filed by companies, 2.91lakh (50%) paid zero taxes and 2.36 lakh assessees (40.53%) paid an average tax of Rs1.6 lakh. Together, this segment constitutes 90.61% of the corporate tax assessees but their contribution to tax was 1.72%. The remaining 9.4%, or 0.55 lakh companies, accounted for 98.3% of the taxes paid by the companies (Table 4). Companies that paid taxes greater than Rs500 crore were 58 in number and accounted for 40.3% of taxes paid. This highlights the skewed nature of tax payments.

> Conclusions: Consistent with its strong commitment to promoting transparency, the government has published comprehensive incometax data. The data reveal fascinating patterns on a variety of tax issues. We hope that researchers and analysts in India and the world will take advantage of this data that would help improve policymaking and administration.

(Adhia is revenue secretary, GoI, and Subramanian is chief economic adviser, ministry of finance. Anand Jha, Sanjeev Singh, Priyanka Singh and Kapil Patidar also contributed to this analysis)