Number of income tax payers in India and US

by Manshu on January 19, 2011

in Economy

Business Standard has an article today about how salaried individuals may be spared from filing tax returns.

It says that the Income Tax department is contemplating a proposal to make filing taxes exempt for salaried taxpayers who don’t have any other source of income.

So, a salaried individual will of course pay taxes, but won’t have to go through the hassles of filing tax returns. The story goes on to say that banks and employers have the details of salaried people who don’t have any other income, so in the future it might be possible to eliminate the need of having the individuals file tax returns, and get this information from other sources.

This will obviously mean a lot less hassle for a lot of folks, and I hope this idea sees the light of day in our lifetime.

What really caught my eye though was the number of people paying income tax in India. The story has this number at 35 million, which is about 3% of our population, and is quite low.

Please note that this is not the total number of taxpayers because you pay indirect taxes on almost everything you use, so in that sense taxpayers will be quite high.

Still, 3% is a very low number, and I thought I’d compare this with the number of people who pay personal income tax in the US.

Here is how that chart looks like.

Number of Taxpayers in India and US

In the US, about 45% of the population pays taxes, as the total population is about 307 million, and the number of returns filed for individual income tax is about 144 million.

That’s a huge difference between India and the US, and I’d think an indication of where India is headed in the years to come as more people join the organized labor force, and more electronic transactions bring in greater transparency.

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{ 12 comments… read them below or add one }

Smart Singh January 20, 2011 at 5:24 am

I’m all for the option of signing up for 30% tax deduction at source for FDs, etc.

I’m sure the cost of processing all these returns is many times higher than the tax collected on bank interests from indivduals:D

Reply

Manshu January 20, 2011 at 8:24 am

Or they could just make the interest on FDs tax free up to a certain limit!

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Patrick January 20, 2011 at 9:44 pm

Or maybe you have stumbled upon the greatest revenue stream in the world over the next five to ten years. If you could get a start and corner the market on filing taxes in India and that country goes from 3% filing taxes to 20% or higher.

Reply

Manshu January 20, 2011 at 11:15 pm

That’s a great thought – didn’t occur to me at all!

Reply

bobby February 9, 2011 at 4:45 am

Respected Sir

20 per cent and 30 per cent Tax on Income are not advisable, as higher income groups may consider it painful to pay high taxes and there are chances that they may opt to evade taxes in one way or the other.

Well, Income Tax may be considered to be charged at a single flat rate of 10 per cent on total Gross Income as TDS just like a Service Tax only, the minimum.

However, this 10 per cent Income Tax amount on total gross income may be borne by Employer and Employee in the following ratio and amount:

Gross Income

10 % Tax in Rupees

(Single Slab 10%)

Ratio

Employer : Employee

Tax in Rupees Borne by

Employer : Employee

upto 50,000

May be Exempted

For People below poverty Line (PBL)

Upto 1,00,000

10,000

Borne by Employer

10,000 : 0

Upto 2,00,000

20,000

9 : 1

18,000 : 2,000

Upto 3,00,000

30,000

8 : 2

24,000 : 6,000

Upto 4,00,000

40,000

7 : 3

28,000 : 12,000

Upto 5,00,000

50,000

6 : 4

30,000 : 20,000

Upto 6,00,000

60,000

5 : 5

30,000 : 30,000

Upto 7,00,000

70,000

4 : 6

28,000 : 42,000

Upto 8,00,000

80,000

3 : 7

24,000 : 56,000

Upto 9,00,000

90,000

2 : 8

18,000 : 72,000

Upto 10,00,000

1,00,000

1 : 9

10,000 : 90,000

More than 10,00,000

Borne By Employee

Full by Employee

The implementation of the above System of bearing the tax burden both by the Employer and Employees may be considered as an effective tool for reducing the tax liability on employees (individuals) and reduces the chances of evasion of Tax by Employers, as sometimes, employers show inflated/bogus/more salaries in their accounts to reflect less income or profits.

Moreover, Government may consider reduced/lower single slab Income Tax rates i.e. 2 per cent, 4 per cent, 6 per cent and 8 per cent on Total Gross Income upto 50,000, 1,00,000, 1,50,000, 2,00,000 respectively, in the form of TDS for lower income groups, which is to be wholly borne by the Employer, instead of Employee.

However, people below the poverty line may be given exemption of this 10 per cent Tax.

Incomes of All small firms, different businessmen, wholesalers, retailers, Actors, Musicians, etc. may be considered to be charged at a single flat rate of 10 per cent either it is 25 lacs or 50 lacs or more.

Spiritual organizations, Charitable Institutions, Clubs, Welfare Organizations etc. may be considered to be liable to Pay Tax at a single flat rate of 10 per cent on all incomes/donations/receipts.

Incomes from 1. Interest 2. Dividends 3. Short / Long Capital Gain 4. House Property may be considered to be charged at a single flat rate of 10 per cent as TDS just like a Service Tax. However, people below the poverty line may be given exemption of this 10 per cent Tax.

Initially, Income Tax of single flat rate of 10 per cent on total Gross Income as TDS may be considered to be applicable for employees of Government, Public Sector Undertakings and Public Limited Companies. Its scope may be further extended to Private Limited Companies, then small firms, then different businessmen, then wholesalers, then retailers and so on.

Wealth Tax may be considered to be abolished.

STT may be considered to be allowed to be continued and may not be considered to abolish the same.

One new Tax on trading of Shares in the Stock Market may be introduced i.e. 0.001% on delivery and 0.0001% intra-day, which will go into the pockets of individual companies, whose shares have been transacted or traded, proportionately according to their volume of transactions.

When all the incomes are charged at a single flat rate of 10 per cent, then ultimately, the revenue from Income Tax shall definitely be manifold. Then there are chances of less Tax evasion, less burden of filing returns.

All investments and purchases should be free from any compulsion in liberalized economy and as such, all Tax Saving Investment Schemes may be considered to be abolished. People should decide its own priorities for purchases and investments with 90 per cent amount available at its disposal – after paying 10 per cent Income Tax. Then People shall have the option either to invest the savings or purchase some more items/things out of the savings. In both the cases, the Government will earn revenue either in the form of Tax on interests/Dividends or Tax on Excise/Sales Tax.

The implementation of this single flat rate of 10 per cent Tax on Total Gross Income may be considered to be an effective tool for overcoming recession and will definitively increase production, employment opportunities and investments, in addition to reduction of black-money, un-accounted income and tax evasion.

Please acknowledge receipt.

With regards

Bobby

Reply

Manshu February 11, 2011 at 4:46 am

I think you are mistaking this website for ministry or finance or something?

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charmachemVIJAYAKUMAR March 31, 2012 at 8:14 pm

sir, it is true. A carpenter is paid in chennai min 5 to 600 Rs a day . He do not pay any tax. Worse our system white washes black money. eg- to construct a building only cement & steel is the billed item. Rest is all black money only . ONCE THIS IS REGISTERED , BANK GIVE LOAN – THIS ENTIRELY BECOMES WHITE. so as you say NO EXEMPTION every body pay tax wether 2 or 4 or 6. No saving / exemption etc Every citizen is given an ID which will follow you on every tranction. This will be simple effective. Evasion should be punished severly .

Reply

AMIT GAJJAR July 11, 2011 at 12:03 pm

dear sir,
please help the sahara internation register ad no.4143/mum/per/5/8663/04.

Reply

charmachemVIJAYAKUMAR March 31, 2012 at 8:16 pm

FUNNY – INDIA imports 900 tons of GOLD IN A YEAR , 7 country only 3 % of the people apy income tax. This can be taken a s a subject for a Phd .

Reply

Prashant Khare March 1, 2013 at 10:43 am

If the number 35 million income taxpayers is correct; then it indicates the quantum of black money we have in India.

Reply

Manshu March 4, 2013 at 5:04 am

Yes, it absolutely does.

Reply

Karan Batra March 16, 2013 at 1:36 am

Any further bifurcation of the above figures into salaried and self-employed taxpayers??

Reply

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