Balaji Viswanathan's answer to How is it possible that only 3% of Indians pay income tax?

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How is it possible that only 3% of Indians pay

income tax?

Balaji Viswanathan, Indian by Birth. Indian by Thought.

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Balaji is a Most Viewed Writer in Tax Policy.

There is nothing shocking about the news item. What you need to do is parse the statistic
that our news media is too lazy to do. Let's start from here:
Less than 3 percent file income tax return in India
Only 3.5 crore people, or 2.89 percent of the country's total population of more than 121
crore, file income tax return in India
Out of the 121 crore people might be your 1 year old son and a 95 year old grandma who
might be earning no income. Neither need to file taxes. In fact, there are only 47 crore
people who are actually working. India has a workforce of 47.41 crore: Government
Of these almost half are employed in agriculture. That is pretty much exempt from income
tax. Our nation, like many others, have an idylistic attitude towards agriculture - a
hangover from the agricultural past. We somehow assume that farmers are doing a more
important job than rest of us.
In any case, that leaves only about 23 crore workers who work in factories and the service
sector.
To pay income tax you need to be earning Rs. 2.5 lakhs or more per year. Because, we don't
want to tax the poor. Now, how many of the workers do you see around you make Rs.
22000 or more per month? How about your maid? Not likely. How about the assistant
sitting in the shop? Not likely.
This is a slightly old data, but what it shows is that the top 20% people even make far less
than Rs. 2.5 lahs/year.

https://www.quora.com/How-is-it-possible-that-only-3-of-Indians-pay-income-tax/answer/Balaji-Viswanathan-2?srid=dy8l&share=a3e46d8b[08 Tuesday Mar 3 16 1:27:16 AM]

Balaji Viswanathan's answer to How is it possible that only 3% of Indians pay income tax? - Quora

Of the 24 crore factory & sector workers, well less than 20% might actually be making Rs.
2.5 lakhs or more per year. That number is not far more than 3.5 crore people who are
filing the taxes.
Learn to look beyond the screaming TV reporter. Visit outside of a major metro areas and
see how many make Rs. 25k or more per month on salaries. That is not really a big
percentage of the total population [that includes kids, students, unemployed, old aged,
homemakers etc]. That percentage is unlikely to be more than 4%.
However, this is not a small number in aggregate. We have more income tax payers than
say UK or Germany. And together they generate Rs. 3.5 lakh crores in revenue to the
government [http://indiabudget.nic.in/ub2016... ]
This is the second biggest source of income to the Union Government [after
corporate taxes] and pays way more than what the government spends on defense,
education and health put together. It is no small amount.

I'm not sure what kind of economics people are taught in India. Our total GDP [in nontechnical terms it is the sum total of all the incomes of all Indians] is about Rs. 125 lakh
crores. No one thinks think it is an underestimate [in fact, some economists even think
that this might be overestimating a bit due to the recent changes in calculation]. Think of
that number for your basic math and before you make a statement that a lot of people are
making Rs. 25L or more [as seen in the comments].
Let's say we have 5 crore people who earn Rs. 25lakhs. That itself would be Rs. 125 lakh
crores with the rest 115 crore people arming Rs. 0. It is absurd. In short, the number of
people earning Rs. 25 lakhs or so will be way, way less than 5 crores. Once you also
account that the billionaires at the top get a way bigger chunk, you can shrink the fairly
rich [Rs. 25L+] to under 1 crore people. Then there might be about 4 crore people who
might be earning Rs. 5-25 lakhs. Thus, our taxable pool is probably only 5 crore people
and if we remove those with agricultural income, the really eligible taxpayers might not
more than 4 crore people. This is also consistent with the economic survey [since the
survey is a few years old, adjust for inflation]. It says 3.4 crore households are actually at
or above the middle class [the tax paying class].

https://www.quora.com/How-is-it-possible-that-only-3-of-Indians-pay-income-tax/answer/Balaji-Viswanathan-2?srid=dy8l&share=a3e46d8b[08 Tuesday Mar 3 16 1:27:16 AM]

Balaji Viswanathan's answer to How is it possible that only 3% of Indians pay income tax? - Quora

Sure, there is tax evasion, but nothing close to what our citizens imagine [often they are fed
with some unrealistic "black money" numbers by our vote seeking politicians].

And while the middle class often whines that they pay most of the taxes, they often ignore
that they also get the larger share of the government benefits. Almost all of the
government salaries and pensions [accounting for a huge portion of the spending] goes to
the middle class. The metro railways where the government is spending tens of thousands
of crores are not for the rich and not for the poor. It is for the middle.
Same for all the spending on IITs, IIMs & other higher education institutions. Middle class
occupations like IT services are also very lightly regulated by the government and
government/PSU jobs have some of the highest perks and pensions. Most of the tax
payers are from these two segments - that are otherwise treated well by the government.
At some point, the middle class has to realize how powerful they are & how much the
government spend on them. The government doesn't spend much for the rich class [even
with all the tax evasion, a rich person pays more in indirect taxes than the benefits he/she
receives] and didn't spend much on the poor class either.
See the part 2 of this: Indian Middle Class Delusion: Part 2
Written 7 Mar 2016 View Upvotes Answer requested by Monish Sivalingan

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Indian Middle Class Delusion: Part 2 - Ode on a Grecian Urn - Quora

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ODE ON A GRECIAN URN

Indian Middle Class Delusion: Part 2

BALAJI VISWANATHAN

A while ago someone asked why Indian government's universities are world class
[IITs, IIMs, NITs, AIIMS] while the government's schools are world's worst. The
simple answer is that while the universities are targeted at the Indian middle
class, the government's schools are targeted at the poor.
We are a country where the government runs subsidized airlines & hotels [again
for the middle class], while the basic health facilities for the poor are appalling. A
poor person driving a TVS-50 moped have to pay premium fuel [petrol] while a
middle class guy in his Innova pays for the subsidized diesel.
While the Indian government always claims to be pro-poor, it was always the
middle class that got the best part of the government [and when the government
schools are used by the middle class - such as the Kendriya Vidyalayas - the
government can surely run it excellently].
Even with all that, middle class leads the whining about how the government is
spending so less on them.

Less than 10 crore people of India are middle class or above. 90% of India are
below that class. Is the government fairly spending 90% of its budget on the poor?
Not anywhere close. Breaking Down Indian Government's Expenses.
Our government heavily subsidizes household electricity, however most of the
poor don't have access to reliable electricity [thus the benefit primarily reaches
the middle class]. On the other hand, the factories are heavily charged for
electricity - hurting not just the rich owner, but the poor factory worker, who now
has few jobs, due to Indian factories not being competitive in pricing.
Our government subsidizes banking, but most poor are unbanked. BSNL and its
predecessors subsidized telephones for decades, but most poor had no access to
phones until a decade ago. Yeah right, for the poor.
Our government heavily subsidizes universities, but most poor cannot get that far
as the elementary schools have very poor investments. Compare these two
numbers. Government expenditure per tertiary student as % of GDP per capita
(%) vs. Government expenditure per primary student as % of GDP per capita
(%)
Don't worry about the units and for now focus on just the raw numbers in both
these pages. In developed countries [such as Australia and US], the spending on
tertiary [university] education per student is same as primary education. In India,
the former is 6.5 times more than the latter. In short, the poor guys going to
government schools get far less spent on them than the middle class guys going to
government universities.
That is the truth the middle class refuses to acknowledge.
When the government is spending more on metro railways, expressways,
superfast trains and new airports [mostly benefitting the middle class] we don't

https://balajiviswanathan.quora.com/Indian-Middle-Class-Delusion-Part-2[08 Tuesday Mar 3 16 1:28:57 AM]

Indian Middle Class Delusion: Part 2 - Ode on a Grecian Urn - Quora

acknowledge how much we get more than the poor. On the other hand, the village
roads & passenger trains have not improved much over the years and the poor
villagers are stuck like deers in headlights unable to cross these new expressways
with the middle class zipping past them.

The next time you pay income taxes, realize how much you as the middle class get
the benefit of the central government far more than any other class.

336 views 75 upvotes Written 3h ago

https://balajiviswanathan.quora.com/Indian-Middle-Class-Delusion-Part-2[08 Tuesday Mar 3 16 1:28:57 AM]