Despite the devastating fallout of the pandemic on the economy, wealthy Indians have become wealthier, shows tax data. There has been a phenomenal growth in the number of individuals entering the Rs 1 croreplus income-tax bracket even during the bleak phase of the economy. This defies conventional wisdom and bolsters the narrative of a K-shaped recovery that says the rich were getting richer.
In the last three financial years, India added 57,951 new crorepati taxpayers, a significant number considering the erosion of output and loss of jobs amid the gloom and doom of Covid-19. The number of individual taxpayers earning more than Rs 1 crore jumped from 1,11,939 in pre-Covid 2019-20 to 1,69,890 in 2022-23, a 51% upswing, according to data periodically released by the Central Board of Direct Taxes (CBDT). The number of such high earners slipped only once during that period —in 2020-21, when taxpayers in the Rs 1 crore-plus bracket dropped to 81,653, as authorities had resorted to repeated lockdowns to stem the spread of the virus.
According to tax experts and income-tax officers whom ET spoke to, several reasons have scripted this unusual trend—better collation of information on income and tax, boom in stocks and in the startup sector, robust growth in high-paying jobs and even moonlighting. Seven years ago, in 2016-17, there were just 68,263 taxpayers with a taxable income of more than Rs 1 crore.
PROFITS IN THE PANDEMIC
“I am not surprised by this phenomenal growth,” says R Prasad, former CBDT chairman. “When so many companies turned highly profitable during the pandemic, their CEOs and those in senior management positions must have benefitted the most. The middle management and those at the bottom of the pyramid usually receive only routine increments.”
The tax department does not release the break-up of taxpayers between salaried and non-salaried people but experts say over half of the crorepati taxpayers are likely to be salaried individuals.
According to Vikas Vasal, a tax par tner in Grant Thornton Bharat, the steep rise in taxpayers in this bracket is a reflection of the economic progress and better tax compliance management. “Despite the pandemic, certain sectors such as IT and ITeS, consultancy and financial services did well,” he says. “Also, the startup sector, which is witnessing a funding winter now, was flush with funds. It offered high-paying jobs and ESOPs to attract talent.
ESOP, or employee stock ownership plan, is a benefit plan that grants company stocks to employees. Sudhir Kapadia, a tax partner in EY India, gives one more reason for the surge in crorepati taxpayers — stock market boom. “Many short-term retail investors in listed Indian securities have benefitted from the sustained increase in stock indices (during the Covid period),” he says, emphasising the contribution of startups and unicorns in spawning high-income earners.
India’s benchmark index, the Sensex, rallied from less than 26,000 points in March 2020 to almost 59,000 on March 31 this year, a journey that aided many retail investors to get richer, also driving some of them to Rs 1 crore-plus tax bracket, thanks to the unusually high incomes from capital gains.
Kapadia says digitisation of tax administration and the extensive collation of data gathered from individual taxpayers and the formalisation of the economy are key drivers for the rapid increase in the taxable income of these people. “The increasing scope and application of tax deduction and collection at source (TDS and TCS) on a wide variety of payments have ensured that a significant share of tax is being mopped up at the inception of a transaction, which also results in an audit trail of such transactions,” he says.
In 2022-23, total taxpayers, including companies, trusts, local authorities and Hindu undivided families, paying taxes on income above Rs 1 crore were 269,184, according to CBDT. These included 66,397 companies, 25,262 firms and 3,059 trusts. Just before the pandemic, in FY 2019-2020, 53,679 companies paid tax on over Rs 1 crore income. This means, the growth of companies in this tax bracket was 23% in three years as against 51% in the case of individuals.
Vikram Doshi, a tax partner in Price Waterhouse & Co, presents a sequence of events which he believes has led to more individual taxpayers entering the Rs 1 crore-plus tax bracket. “When the pandemic began, companies fired many employees. But soon after there was a big rush in hiring. Salaries of a select few moved up significantly during that phase,” he says. “Also, moonlighting pushed the income level of highsalaried individuals further up. As they started receiving income from multiple companies, that too all in white, these enhanced earnings coupled with capital gains from stock sales took many individuals to a higher tax bracket of Rs 1 crore-plus," he says. He adds that the policy of some companies to shift their perquisites to cash also contributed to this trend.
Though over 66,000 companies with Rs 1 crore-plus income (FY2023 figure) file tax returns annually, only listed companies make the salaries of their senior management public. Among listed companies, only 754 entities have so far disclosed the remuneration of employees for 2022-23. Among them, 1,161 individuals received pay packages of Rs 1 crore-plus, according to data collated by ET Intelligence Group (ETIG). The taxable income of many high earners could go up once other incomes, including capital gains, are added while filing tax returns.
The number of taxpayers in the Rs 50 lakh-1 crore income bracket, meanwhile, grew from 2,30,163 in 2019-20 to 3,32,065 in 2022-23, registering a 44% increase in three years, marginally less than the growth of taxpayers in the `1 crore-plus bracket for the same period. Some of these assesses may migrate to the higher bracket in the coming years.
Requesting anonymity, a senior income-tax officer tells ET that “non-salaried, non-business income, mainly from the sale of land and flats” has also contributed to the surge in crorepatis. “Also, there is better compliance nowadays. The concept of No. 2 khata (non-disclosure of a second bank account) is over because of better reporting by banks.
I won’t deny that some individuals are still hiding taxes by using cash, gold and precious stones. So, the number is bound to go up further,” he adds.
The number of high-income earners and taxpayers should rise, agrees Vasal of Grant Thornton. “The Indian economy continues to be a bright spot despite multiple global challenges, be it geopolitical or economic. With growing economic prosperity, we should witness a steep rise in high-paying jobs and incomes,” he says.
“My bet is on the share market,” says former tax sleuth Prasad. “If the market continues to rise, the number of crorepati taxpayers is bound to rise too.”
By Shantanu Nandan Sharma
https://economictimes.indiatimes.com/news/india/in-the-last-three-years-india-has-added-almost-58000-crorepati-taxpayersa-jump-of-51-what-has-scripted-this-unusual-trend/articleshow/102862901.cms
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