‘Super Rich’ Incomes’ Share Ebbing Amid Middle-Class Mobility: CBDT

Primary Source: The Hindu

Relevance: Central Board of Direct Taxes (CBDT), Income Tax, Income Inequality & Mobility, Direct Tax, India's taxation policies, Economic growth, Fiscal health, Income Tax Return, IT Return, Tax Base, Income inequality

Click here for Daily Current Affairs

Prepp Prelims Booster: Central Board of Direct Taxes (CBDT), Income Tax

Prepp Mains Booster: Government Resources – Tax & Non-Tax, Fiscal & Monetary Policy

Why in the news?

• The Central Board of Direct Taxes (CBDT) released information indicating a shift in income dynamics since 2013-14.
• This release follows claims by Congress of increasing income inequality based on income tax data.

Central Board of Direct Taxes (CBDT)

• The Central Board of Direct Taxes (CBDT) is a statutory body established under the Central Board of Revenue Act, 1963.
• It is the apex body in India for framing policies related to direct taxes and for administering direct tax laws through the Income Tax Department.
• CBDT is a part of the Department of Revenue in the Ministry of Finance and consists of a chairman and up to six members.
• The functions and responsibilities of CBDT include:
  • Formulation of Policies: CBDT plays a role in framing policies and rules related to direct taxes (like Income Tax) in India.
  • Administration: It oversees the administration of direct tax laws, including the collection and recovery of taxes.
  • Processing of Returns: CBDT ensures the accurate and prompt processing of tax returns and refunds.
  • Investigation: In cases of tax evasion, the board conducts investigations and takes appropriate action.
  • Implementation of Law: CBDT ensures that the tax laws are interpreted correctly and applied uniformly throughout the country.
• The jurisdiction of CBDT is extended to both personal income tax and corporate tax.
• It does not deal with indirect taxes, which fall under the purview of the Central Board of Indirect Taxes and Customs (CBIC).
• CBDT also advises the government on matters related to direct taxation and plays a role in the international taxation policy of the country.

Growth and Trends in Income Tax Returns in India

1) Widening of Tax Base

• Income tax (I-T) returns filed by individuals increased from 3.36 crore (2013-14) to 6.37 crore (2021-22).
• Notably, there's growth in returns filed across various income brackets.

2) Low-Income Range Details

• For incomes up to ₹5 lakh, individual tax returns increased by 32%, from 2.62 crore (2013-14) to 3.47 crore (2021-22).
• Some in this bracket have income below the taxable limit.

3) Migration to Higher Income Ranges

• Tax returns for income brackets of ₹5 lakh to ₹10 lakh and ₹10 lakh to ₹25 lakh saw increases of 295% and 291% respectively.
• Indicates taxpayers are moving to higher income groups.

4) Income Contribution Changes

• Top 1% of individual taxpayers' contribution to gross total income dropped from 15.9% to 14.6%.
• Bottom 25% taxpayers' share increased marginally from 8.3% to 8.4%.
• Middle 74% taxpayers saw their share of gross total income rise from 75.8% to 77%.

5) Average Income Growth

• Average income for individual taxpayers grew 56%, from about ₹4.5 lakh (2013-14) to ₹7 lakh (2021-22).
• The top 1% of taxpayers saw their average income increase by 42%.
• The bottom 25% witnessed a growth of 58% in their average incomes.

6) Overall Tax Collections

• Notable growth in gross total income of individuals across different income groups post-2013-14.
• Net direct tax collections soared from ₹6.38 lakh crore in 2013-14 to ₹16.61 lakh crore in 2022-23.
• A total of 7.41 crore I-T returns filed this year, including 53 lakh from first-time filers.

Conclusion

The CBDT's data suggests a movement of individuals up the income ladder since 2013-14, resulting in a broadened tax base. This counters recent claims about widening income inequality and suggests a more balanced distribution with the middle class witnessing significant mobility.

(*Click this link to read prelims specific weekly current affairs articles)

FAQs

MCQs

Question: The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of (UPSC 2016)

(a) mining operation by multinational companies in resource-rich but backward areas

(b) curbing of the tax evasion by multinational companies

(c) exploitation of genetic resources of a country by multinational companies

(d) lack of consideration of environmental costs in the planning and implementation of developmental projects

Question:  Consider the following statements: (UPSC 2017)

1) Tax revenue as a percent of GDP of India has steadily increased in the last decade.

2) Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Question: What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’? (UPSC 2017)

1) It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.

2) It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.

3) It will enormously increase the growth and size of the economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Question: A decrease in the tax to GDP ratio of a country indicates which of the following? (UPSC 2015)

(1) Slowing economic growth rate

(2) Less equitable distribution of national income

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2