Individual crorepatis grew more than companies in Modi govt's first 3 years

The number of companies that declared an income of more than Rs 10 million in 2016-17 was only 39,753, much below the number of individual crorepatis

What do the latest income-tax data released last week by the Central Board of Direct Taxes (CBDT) tell us about Indian companies and individual tax-payers? More precisely, what does the amount of gross income declared in tax returns indicate about how India Inc and the Indian tax-payer have fared in the last few years under the Narendra Modi government? Have the promised Achchhe Din (good days) actually arrived?

Here are five clear pointers, gleaned from a quick comparison of the income-tax data on income earned in the 2016-17 financial year with that declared in the previous two years of the Modi government.

1. India has many more crorepati (with income of over Rs 10 million) individuals than crorepati companies.

There were just 39,753 companies that declared an income of over Rs 10 million in 2016-17. This was an 11 per cent increase over 36,179 companies with an annual income of over Rs 10 million in 2015-16. The growth in the number of crorepati companies in 2015-16 was quite muted at just about 6 per cent. In contrast, the first year of the Modi government, 2014-15, had seen robust growth of 21 per cent with 33,705 companies declaring gross total income of over Rs 10 million.

Individuals, on the other hand, have been doing far better as far as reporting of gross total income is concerned. In 2016-17, the number of crorepati individuals reporting over Rs 10 million gross total income stood at 81,344, double the number of crorepati Indian companies. And the growth rate, too, was higher at 20 per cent, compared to 67,783 Indian individuals with gross income of over Rs 10 million. In 2014-15, the number of crorepati individuals was estimated at 59,830, which clocked a growth rate of over 23 per cent over 2013-14.

Individual taxpayers in India with gross total income of over Rs 10 million have certainly seen decent growth in their numbers in the first three years of the Modi government, even though experts believe that this is a gross underestimation since the number of Indians earning more than Rs 10 million a year is much larger, which would get captured through greater tax compliance in the coming years.

But the relatively modest growth in the number of companies declaring gross income of over Rs 10 million is a cause for some reflection and even concern. Remember that demonetisation had hit the Indian economy in 2016-17 – it was announced on November 8, 2016. Did demonetisation affect the top companies more than individuals with high net worth?

Even if you add the number of 12,990 firms (registered as partnerships), which declared an income of more than Rs 10 million in 2016-17, the total number of crorepati companies and firms adds up only to 52,743, much below the number of individual crorepatis. The number of firms declaring an income of over Rs 10 million has not seen any significant growth, either, in the last three years – moving up from 9,158 in 2013-14 to 12,990 in 2016-17.

2. The Micro, Small and Medium Enterprises (MSME) sector seems to have seen steady erosion in its income

Companies reporting a gross total income of less than Rs 5 million a year have been growing at low single-digit rates in the first three years of the Modi government. In some income segments, the number of such companies, which most probably will belong to the MSME sector given their income level, has actually declined.

In 2013-14, the last year of the Manmohan Singh government, the number of companies reporting gross total income between zero and Rs 150,000 stood at 140,333 and that represented a rise of about 16 per cent. In 2014-15, the first year of the Modi government, the number of such small companies fell by 12 per cent to 123,324. In 2015-16, their number increased marginally by 3 per cent to 127,264, but dropped again in 2016-17 to 126,914. It was much more than a possible impact of demonetisation as the decline has been quite consistent in the entire period of three years.

Not that the decline in this category was due to the fact of companies reporting higher income in the following years and, therefore, graduating to a higher segment of income. The number of companies reporting income in all the subsequent higher categories (including those between Rs 150,000 and Rs 500,000, between Rs 500,000 and Rs 1 million, between Rs 1 million and Rs 2.5 million and between Rs 2.5 million and Rs 5 million) has either declined or grown at a low single-digit rate.

Thus, the number of companies reporting income between Rs 150,000 and Rs 500,000 actually declined from 66,978 in 2013-14 to 59,639 in 2016-17. Similarly, in all other income categories in this group, the number of companies has grown at a very modest pace in these three years – from 35,397 to 36,955 for the Rs 0.5-1 million category, from 40,256 to 45,235 in the Rs 1-2.5 million category, and from 23,411 to 27,579 in the Rs 2.5-5 million category.

The annual average growth rates for these categories in these three years have ranged between 1.4 per cent and 6 per cent. If one uses the same yardstick for the larger companies with gross total income between Rs 5 million and Rs 10 million and those above Rs 10 million, their annual average increase in these three years would range between 8.5 per cent and 13 per cent.

The trend is unmistakable. The higher the income category, the faster has been the growth in the number of companies, too. This could mean that either the smaller and medium companies have moved very fast to become large companies with much higher incomes or have sunk lower in the chart with reduced income. Also, the impact of demonetisation cannot be underestimated.

The exception is with regard to firms reporting their income in these three years. Growth in the number of firms filing returns has been quite healthy across all income categories above Rs 150,000 – ranging between annual average growth of 13 per cent and 16 per cent. Not much of an impact of demonetisation on partnership firms, it would appear.

3. Steady growth in companies that report nil income, while fewer individuals with no income

More than half the companies that filed their returns have shown no gross income for 2016-17. And the trend shows a rise in their numbers over the last three years. Of the 792,268 companies which filed returns for 2016-17, as many as 434,024 companies declared nil income. This was about 55 per cent and the ratio for 2013-14 was 50 per cent. At 385,948 returns, the share of companies with no income for 2014-15 was about 53 per cent out of the total returns of 719,796.  

In contrast, the number of individuals reporting nil income is declining even though there has been a sharp rise in the number of returns in this period. The number of individuals filing returns rose from 36.51 million for 2013-14 to 46.67 million for 2016-17. The number of nil-income returns, however, fell from 198,216 to 135,036 in this period and their share fell from 0.54 per cent to 0.29 per cent. In 2015-16 also, the share of nil-income returns was about 0.29 per cent.

Firms, too, have not seen significant growth in filing under nil income or even income below Rs 150,000.  The number of nil-income returns filed by firms in 2016-17 was estimated at 262,886, which rose by an average annual rate of 5 per cent to over 227,362 in 2013-14. The number of firms returning an income of below Rs 150,000 also rose from 441,749 to 490,448 in the same period, an annual average increase of less than 4 per cent.

4. Individuals have booked their gains more from the stock markets at a faster rate than the companies

In 2013-14, individuals had reported long-term capital gains of Rs 316 billion. Three years later, in 2016-17, such gains for individuals were estimated at Rs 522 billion. This was a rise of 65 per cent in three years.

Companies, however, reported lower growth of 54 per cent in this period in their long-term capital gains. From Rs 289 billion in 2013-14, such gains for companies rose to Rs 736 billion in 2016-17.

In respect of short-term capital gains, too, individuals reported a three-year increase of 144 per cent from Rs 67 billion in 2013-14 to Rs 165 billion in 2016-17. This was higher than the companies’ short-term capital gains, which grew by 130 per cent from Rs 129 billion to Rs 296 billion in the same period.

5. House property income declined for individuals, but not for companies

Perhaps reflecting the slowing real estate market, individuals have not reported any increase in their income from house property in the three-year period from 2013-14 to 2016-17.

In 2013-14, house property income for individual taxpayers rose by 18 per cent to Rs 444 billion. By 2016-17, such income for individuals was estimated at Rs 319 billion – a fall of 28 per cent. The problem was largely because in 2014-15 house property income for individuals declined by as much as 39 per cent to Rs 272 billion. The growth in other years, ranging between 4 per cent and 13 per cent, was not enough to offset that decline.

However, companies have seen a steady rise in their house property income from Rs 92 billion in 2013-14 to Rs 134 billion in 2016-17. It would appear that companies have managed their house property more judiciously than individuals to have ensured a steadier and more stable income flow from real estate.