New Delhi: A recent report by the State Bank of India (SBI) has revealed a significant 74.2% decrease in income inequality coverage for individuals earning up to Rs 5 lakh annually between the fiscal years 2013-14 and 2022-23. This challenges the common belief of worsening inequality in India. The report, conducted by the SBI’s Economic Department, analyzed income distribution curves from assessment years 2014-15/FY14 to AY24/FY23.
The analysis indicates a positive trend as there is a noticeable shift towards the right in the income distribution curve, suggesting that individuals in lower income brackets are experiencing an increase in their income, aligning more closely with their share in the population.
The report, titled ‘How Tax Simplification has given a necessary fillip to ITR Filing’, highlights that individuals with incomes up to Rs 3.5 lakh have seen a reduction in their share of income disparity from 31.8% in FY14 to 12.8% in FY21. This signifies a substantial 19% increase in income for this group compared to their population share.
The study also notes that lower income groups, earning less than Rs 5.5 lakh, have shown positive growth rates over the past decade, with the exception of AY20 due to the impact of the Covid-19 pandemic.
Furthermore, the report reveals that states like Maharashtra, Delhi, Gujarat, and Karnataka, which have traditionally been leaders in income tax filings, are reaching saturation levels, while states like Uttar Pradesh, Bihar, Andhra Pradesh, Punjab, and Rajasthan are increasing their share in the income tax base.
The contribution of direct taxes to total tax revenue has also increased, reaching 56.7% in AY24, the highest in 14 years. The direct taxes to GDP ratio has risen to 6.64% in AY24, the highest since 2000-01, indicating an improvement in tax compliance.
In terms of Income Tax Returns (ITRs) filed, AY24 witnessed a significant increase, with approximately 8.6 crore returns filed, compared to 7.3 crore in AY22. The majority of returns, 6.89 crore or 79%, were filed on or before the due date, leading to a decrease in the share of returns filed after the due date.
Overall, the data suggests a positive trend towards reducing income inequality and improving tax compliance in India.
