An SBI Research Report delves into the trends of income tax returns (ITR) filed between FY11 and FY22, revealing positive shifts in the middle-class landscape. The report showcases a rise in average middle-class income and a decline in zero-tax liability returns, offering valuable insights into the evolving socioeconomic dynamics.
Evolving Middle-Class Income:
The report highlights a remarkable growth in the average Indian middle-class income over the past decade, with the weighted mean increasing from Rs 4.4 lakh in FY13 to Rs 13 lakh in FY22. This growth stems from upward mobility within income groups and a decrease in zero-tax liability filings.
Transition from Lower to Upper Income Strata:
The lower middle class has demonstrated upward mobility, with 13.6 percent of the population moving out of the lower-income strata between FY11 and FY22. In FY11, 84 percent of tax filers belonged to the up-to-Rs-5-lakh income group, which decreased to 64 percent in FY22. The report underlines a significant decrease in zero-tax liability returns, plummeting from 84.10 percent in FY11 to 64 percent in FY22. This reflects a positive trend in tax compliance and higher taxable incomes among filers.
The report projects a potential rise in the average income to Rs 49.70 lakh by 2047. This growth is anticipated due to an increased number of tax filers and a shift towards higher income brackets. Furthermore, around 25 percent of tax filers will move out of the lowest-income strata by FY47.
Recent years have witnessed improved filing and processing of ITRs. In FY22, 75 percent of returns were filed on time, compared to 60 percent in FY19. The report attributes this improvement to taxpayer discipline and simplified processes.
Maharashtra, Uttar Pradesh, Gujarat, Rajasthan, and West Bengal accounted for 48 percent of FY22 ITRs. Smaller states like Manipur, Mizoram, and Nagaland saw over 20 percent growth in ITR filings over nine years. Interestingly, some states with outward migration exhibited high ITR filings due to PAN address disparities.
Innovations in Tax Filing:
The report recommends linking Aadhaar card addresses to ITRs for more accurate workplace representation. Suggestions include harmonizing PAN-Aadhaar data and using ITRs to capture the socio-economic and cultural characteristics of migrant workers.
To improve the tax filing experience, the report suggests enabling ITR filing in multiple languages and incorporating AI-led assistance.