Recently shared data by the government in the Lok Sabha indicated that while there is a significant increase in the number of ITRs filed between 2019-20 and 2022-23, the share of those whose ITR amounted to zero tax liability has grown even faster.
31 July 2023 was the last day to file an income tax return (ITR) for AY 2023-24 (FY 2022-23) for most categories of taxpayers. According to the Ministry of Finance, the total number of ITRs filed for AY 2023-24 as of 31 July 2023 was more than 6.77 crore, 16.1% more than the 5.83 crore ITRs filed for AY 2022-23 as of the same day in 2022. Further, the e-filing portal observed 4,96,559 ITR filings in an hour between 5 PM to 6 PM on 31 July 2023. The Department also received 53.67 lakh ITRs till 31 July 2023 from first-time filers which is an indication of the widening of the tax base, the press release said.
Of late, there are numerous media reports which claim that the IT Department has made the scrutiny of the returns more stringent with the help of AI and Technology. Moreover, there are also reports that the department sent notices to many tax evaders including salaried persons for claiming fraudulent returns and showing bogus deductions. But how many people out of the 140-crore population in the world’s most populous country pay tax? How many file returns every year? How many claim zero tax liability? From which state are most ITRs filed? We explore these figures in this story.
In response to a question in the Lok Sabha in the Budget Session of 2023, the Ministry of Finance submitted the state-wise data on the number of persons who filed Income Tax returns during the last four years, from 2019-20 to 2022-23. The question also included the state-wise data on the number of persons whose Income Tax returns amount to zero tax liability during the said period. Electronically filed ITRs were considered for this data.
7.4 crore people filed IT Returns in 2022-23, but 70% claimed zero-tax liability
As per the Lok Sabha response, the number of people filing income tax returns has increased from 6.48 crores to 7.4 crores during these four years from 2019-20 to 2022-23. On the other hand, the number of people filing returns amounting to zero tax liability has increased from 2.9 crores in 2019-20 to 5.16 crores in 2022-23. To put into perspective, while the number of those who filed ITRs has increased by 14.2%, the number of people with zero tax liability has increased by 63%. In simple terms, even though there has been a significant improvement in the number of people filing ITRs, this does not necessarily mean that there has been an increase in the number of people actually paying tax as more people are claiming zero-tax liability. This could be because of mostly first-time filers whose income may not fall into tax paying bracket yet.
The share of persons claiming zero-tax liability out of the total number of people who filed ITR was 45% in 2019-20 and touched 70% in 2022-23. In 2022-23, out of 7.4 crore persons who filed ITR, 5.16 crore had claimed zero tax liability. In other words, only about 2.24 crore people paid income tax in 2022-23 whereas in 2019-20, 3.58 crore people paid income tax. The reasons for these contrasting numbers are not clear.
Only 1.6% of India’s population paid income tax
To calculate the share of Indians who filed ITRs, we took the data on the projected population of India as of March in each of these years based on Health Ministry’s report from Dataful. Based on these population projections, it is seen that only about 4.8% of the population filed ITR in 2019-20. This gradually increased to 4.93%, 5.05%, and 5.33% in the subsequent years 2020-21, 2021-22, and 2022-23. During this period, the share of persons who filed zero tax returns rose from 2.15% in 2019-20 to 3.72% in 2022-23. Out of the 140 crore people in the country, only about 1.6% paid income tax in 2022-23. The share was even lower, 1.37%, in both 2020-21 and 2021-22. In 2019-20, the share was 2.15%.
Among states, Maharashtra has the highest number of persons filing ITR with more than 1 crore people filing each year. Following Maharashtra are Gujarat & Uttar Pradesh with more than 60 lakh people filing ITR in each of the 4 years considered. Between 40 to 50 lakh people filed ITR in Rajasthan, Tamil Nadu, and West Bengal in each of the years. These six states together account for 54% of the total number of people in India who filed ITR in each of these years.
More than 80% claimed zero tax liability in Nagaland, Gujarat, and Punjab in 2022-23
Among those who filed ITR, the share of people claiming zero tax liability was more than 80% in Nagaland, Gujarat, and Punjab in 2022-23. Prior to this, the share of people claiming zero tax liability was the highest in Gujarat followed by Punjab before falling in 2022-23.
The share has been above 70% across almost all the Northeastern states in the last three years. This may be attributed to certain exemptions extended to people in these states in the income tax act as 30% of the population of this area are scheduled tribes. They are exempted under section 10(26) of the Income Tax Act from paying taxes on any income arising/accruing from any source in the scheduled areas/states, and entire income from dividends or interest on securities. Income other than these exempt incomes, such as accruing or arising from sources outside scheduled areas, is chargeable to tax. The Act also exempts agricultural income from computing the tax which could be why states like Punjab and Uttar Pradesh are mainly agrarian states.
On the other hand, all the South Indian states have a lower share of persons with zero liability in their ITR. The share in Kerala was the lowest among states in 2022-23 with 54% of persons who filed ITR having zero tax liability while Karnataka had 57%. Both Andhra Pradesh and Tamil Nadu recorded around 60% while Telangana recorded 61.8%. Even in other years, these states have recorded a lower share, as compared to the national average.
About 22% filed ITR in Chandigarh while only less than 2% did in Bihar
If we compare the number of persons filing ITR and the projected population each year, only Chandigarh has consistently reported around 22% of the population filing ITR. About 17% of the population in Delhi and 14% in Goa filed ITR each year. While the share has increased across most states, in Punjab, the share increased from 10.2% to 11.75% and in Gujarat, the share increased from 9.4% to 10.4% in four years. Despite having major cities attracting employment, the share of people filing ITR in Maharashtra, Karnataka, Telangana, and Tamil Nadu was between 5 to 10% throughout while it was around 4% in West Bengal. This can also be read as more than 90% did not even file ITR in these states. Excluding Northeastern states, Bihar consistently reported less than 2% while Odisha reported less than 3%.
Several measures are being taken to encourage people to file IT Returns
What these numbers reveal is that only a small percentage of the population is paying income tax in India, which is a direct tax. Additionally, most Indians who purchase any good or avail of any service also pay Goods and Services Tax (GST) which is an indirect tax. In the US, more than 50% of households paid income tax in 2022. In the Lok Sabha response, the Finance Ministry stated that the government is taking several measures to encourage more people to file their ITR. These include expansion of scope of TDS/TCS, simplification of personal income tax, pre-filling of Income Tax Returns, and introduction of new forms, among others. The Ministry also stated that E-mails and SMS reminders are issued to taxpayers to file their ITRs and pay their tax dues in addition to carrying out other awareness programs.