Income Tax and the Indian Citizen…Incredible!

Since it’s just past tax season in the US, this post seems timely. But it has more to do with India than the US. I heard an amazing statistic about income tax paying citizens of India that I had to share.

Consider this amazing statistic: Under 3% (THREE PERCENT!) of Indian citizens pay income taxes. (As of the end of the tax year in 2011, that number was actually 2.77%).  How is that possible? 

Therefore, the remainder of the income tax revenue for the government is derived from corporations. 

Regarding income levels, the tax code and rate is relatively simple –

  • Annual Income of $4000 or below – no tax
  • Annual Income ranging from $4001 to $10,000- 10%
  • Annual Income from $10,001 to $20,000- 20%
  • Annual Income over $20,000 – 30%

There are various levels of tax exemptions for individuals. For example, any income from agriculture (around 45% of employment in India) is exempt from income taxes.

But, under 3% of the population paying income taxes?  That’s insane! Here’s how this lopsidedness looks compared to how many citizens in the USA pay income taxes:

Of course, there’s a lot that’s lopsided in India and this is just one more crazy fact to add to the list. Regarding wealth and income – the top 10% of the population brings home some 34% of the income while the lowest 10% suffers with just 3.5%. What’s interesting though is that even in the top 10% only a paltry number of people actually appear to be paying income taxes.  So, what’s happening to the rest?!

No wonder then that the term “black money” is such a commonly used one here…there’s a pervasive “cash society” at work here.

Take the fact that the low income tax collected will surely impact the nation’s tax revenue. Add to that, the endemic corruption that besets this country.  And is it any wonder that badly needed (basic) government services are lacking?

Despite what all the promising economic indicators indicate, one would assume that this situation has to change dramatically if India Shining is to become a reality some time in the future.  

Yet, there are other aspects of India that counter this. For example, here is some of what is happening in this country:

  • The economy is ninth in the world (nominal GDP) and third in purchasing power parity (PPP).
  • It is one of the G-20’s major economies and a member of the BRICS.
  • It has one of the highest economic growth rates in the 2000’s and is still among the fastest growing economies in the world.
  • It is the 19th largest exporter and the 10th largest importer. 
  • Its growth has been fueled by a huge increase in the size of middle class consumer and a large labor force (but apparently not the tax base…)

Incredible.  What can I say?  Except that it’s the yin and the yang.  All over again.



Income Chart:


Posted on April 21, 2012, in expat, india and tagged , , , , , , , . Bookmark the permalink. Leave a comment.

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