Decoding ITRs: Average middle-class income can rise to Rs 50 lakh by 2047

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Weighted mean income of an average middle-class Indian has risen to Rs 13 lakh in fiscal year 2022 from Rs 4.4 lakh in FY13 as many taxpayers have transitioned from the lower income group to the upper income group, thereby bumping up the average, according to a report by SBI Research. Moreover, there has been a dip in the number of return filers with zero tax liability.

There has been a material decline in zero tax liability, their share in total returns filed has declined to 64% in assessment year 2023 from 84.1% in assessment year 2012, noted the report.

Based on the gross income data of ITR, SBI has calculated weighted mean income for each assessment year, assuming that most of the people are earning incomes around weighted mean income

SBI estimates that weighted mean income is expected to increase from Rs 13 lakh currently to Rs 49.7 lakh in 2047,

particularly due to increase in number of tax-filers, as also due to shifting of distribution of tax-filers from lower income

group to upper income group.

Transition of the middle class

In Assessment Year (AY) 2011-12 (FY11), 16 million people filed ITR with maximum concentration of 84% population belonging to income group of up to Rs 5 lakh. In AY23, 68.5 million people filed ITR with maximum concentration of only 64% population still in the income group of up to Rs 5 lakh. This means that 13.6% population has left the lower income strata and migrated upwards in AY23 in comparison with AY12.

8.1% population has increased in the income group of Rs 5 lakh – Rs10 lakh, 3.8% population has increased in the income group of Rs10 lakh – Rs20 lakh, 1.5% population has increased in the income group of Rs 20 lakh – Rs 50 lakh.

0.2% population has increased in the income group of Rs 50 lakh – Rs1 crore, while close to 0.02% population has increased in the income group of above Rs 1 crore.

Transition of lower middle income class to middle and upper class by FY47

SBI also expects that 25% of ITR filers will leave the lowest income strata by FY47, with around 17.5% filers expected to shift to income group of Rs 5 lakh – Rs 10 lakh, 5% expected to shift to income group of Rs 10 lakh – Rs 20 lakh, 3% expected to shift to income group of Rs 20 lakh – Rs 50 lakh.

0.5 per cent of filers are expected to shift to income group of Rs 50 lakh – Rs 1 crore, and 0.075 per cent to income group of above Rs 1 crore by FY47. . A total of 193,800 filers disclosed income over Rs 1 crore in AY23.

It also estimates that ITR filers are expected to increase from 70 million in FY23 to 482 million in FY47, increasing its share in workforce with taxable base from 22.4% in FY23 to 85.3% in FY47.

Another big positive has been the significant decline in the number of zero-tax liability returns. The share of such ITRs has gone down from 84.10 percent in FY11 to 64 percent by FY22.

Zero-tax liability returns are tax returns where the individual’s taxable income falls below the basic exemption limit and he is not liable to pay any tax.

Returns are being processed on time

Of the 78 million returns filed in FY22, 75 percent were filed on or before the due date. Only 25 percent returns were filed late. This is sharply down from the 60 percent late tax returns in FY19.

For AY24, 68 million ITRs have been filed by the due date and another 18-20 million returns are expected to be filed in the remaining financial year till Mar’24, thereby taking the total number close to/over 85 million, which is 37% of formalized labor force.

“For AY24, we believe the share of IT returns filed after due date may drop to around 20%. This reveals the discipline among tax-payers along with the simplification of IT forms and processes driven by constant efforts of CBDT to build an efficient, digital-heavy filing, verification and return architecture sans hassles,” said the report.

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