Top 1.5% account for 19% of total earnings: Tax returns data show disparity

The top 1.5 per cent of individuals who filed income tax (I-T) returns accounted for 19 per cent of the total income in financial year 2017-18 (FY18). 

This is a rise from 17 per cent in 2015-16 and highlights an increase in inequality.

The trend emerges from the latest data on I-T released by the department of revenue recently and complements findings of the National Statistical Office’s (NSO’s) consumer expenditure data for the year 2017-18. 

It shows higher spending by the top segments of the society, even as overall spending declined by 3.5 per cent. The top 1 per cent assesses earn an annual salary of Rs 25 lakh and above.

In fact, among salaried individuals, the income share of roughly the top 1 per cent, earning over Rs 25 lakh, increased from 16.5 per cent in 2015-16 to 18 per cent in 2017-18. 

This includes income from salary, house property, business income, long and short term capital gains, interest income and other sources.

In between, there is a middle class, constituting about 90 per cent of the total individual tax payees earning up to Rs 10 lakh. This category saw income shrink from 63.3 per cent in 2015-16 to 62 per cent in 2017-18.

Firms’ data confirms the inequality theory, with the top 1 per cent firms earning Rs 1 crore and above, accounting for over 64 per cent of the total income in 2017-18, against 58.5 per cent two years ago.

Similarly, the bottom 10 per cent among firms saw share in income reduce from 6.7 per cent in 2015-16 to 5 per cent in 2017-18.

Whereas for individuals, the top 1.5 per cent of individuals earning business income (Rs 10 lakh and above) made up for close to 24 per cent of income in FY18, against 19 per cent in FY16.

Inequality is generally measured over a period of time. Hence, principle comparison has been done between the data of 2017-18 and 2015-16, the years after and before demonetisation of high-value currency took place (in November 2016).

“Data indeed indicates an increase in inequality with middle class accounting for a lesser share in total income. But the reasons are difficult to infer and more so to relate it with the demonetisation in 2016-17,” said a government official.

Madan Sabnavis, chief economist CARE Ratings, said it was logical to infer that inequality has increased over the last few years. “People in the higher income bracket are seeing a higher increase in salaries,” he added.

India’s Gini Coefficient, a measure of inequality, touched an all-time high of 0.5 in 2017, according to economists Lucas Chancel and Thomas Piketty.

The higher the coefficient – ranging between zero and one – the higher the inequality. However, it should be noted that agricultural income is exempted from I-T. In fact, economists pointed out that the top one per cent of income earners were garnering 22 per cent of the total income in India, which is the highest ever.