SBI Research marked India’s Independence Day on August 15, 2023, with an astounding projection – an 85.3 percent surge in individuals filing income tax returns, estimated to reach 482 million by FY2047. This anticipated growth in tax filings is poised to elevate India to the status of a middle-income economy. The report also predicts an increase in taxpayers falling into higher income tax brackets. Around 25 percent of Income Tax Return (ITR) filers are expected to move out of the lowest income category by FY47, with per capita income soaring to Rs 14.9 lakh.
Income Tax Landscape in India: A Decade of Transformation
In the assessment year (AY) 2011-12, 16 million people filed ITRs, of whom 84 percent fell within the Rs 5 lakh income bracket. In contrast, AY23 saw 68.5 million individuals filing ITRs, with the proportion in the Rs 5 lakh income category dropping to 64 percent. Notably, the SBI report highlights that 13.6 percent of the population has transitioned out of the lower-income segment.
Furthermore, the report projects a remarkable increase in per capita income, the yearly earnings of an average Indian. This figure is set to rise from Rs 2 lakh in FY23 to an impressive Rs 14.9 lakh by FY47. Over the past nine years, the weighted mean income has jumped from Rs 4.4 lakh (AY14) to Rs 13 lakh (AY23). This significant growth is attributed to individuals moving from lower to higher income brackets and a surge in the number of tax filers reporting income. The study predicts the mean income to reach Rs 49.7 lakh by 2047 for the same reasons.
Transforming India’s Tax Landscape: Trends and Efficiency
The report also underscores the need for improved tracking of inter-state migration in ITR returns to enhance policy narratives. Additionally, it forecasts India’s workforce to expand from 530 million in FY23 to 725 million in FY47, constituting 45 percent of the population.
The report highlights an evident increase in discipline in ITR filing, with an estimated 85 million returns expected by AY24. The percentage of returns filed after the due date has significantly reduced from 60 percent in AY20 to just 25 percent in AY23. This transformation is attributed to the simplified forms and user-friendly digital processes implemented by the Central Board of Direct Taxes (CBDT).
Furthermore, the report sheds light on shifting trends among taxpayers. Around 42 percent of taxpayers filed ITR-1, primarily individuals with incomes up to Rs 50 lakh, including salary, pension, and a single house property. The percentage of zero tax liability filers witnessed a substantial decline, dropping from 84.1 percent in AY12 to 64 percent in AY23.
Additionally, the report highlights the improving efficiency of the Income Tax Department in processing tax returns. In AY 2022, only about half of the returns were processed on time, but by AY 24, 64 percent of filed returns were processed by the due date. The report also indicates a high processing rate, with 72 percent of verified returns being processed in AY24.
The report’s findings reflect a positive trajectory in India’s income landscape, indicating not only increasing incomes but also a more disciplined and efficient tax ecosystem.
