The finance minister, in his interim budget speech, proposed a complete rebate on tax for those earning up to ₹5 lakh a year, with an eye on middle-class voters before the general elections this year.
The beneficiaries of this move could include people with annual income of around ₹10 lakh. This is because various tax saving instruments can be used to reduce taxable income for a given level of income. This makes it difficult to estimate the exact revenue impact of the income tax relief announced in the budget.
Having said that, income tax statistics can be used to get a rough idea about the number of potential beneficiaries and their contribution to the total payable income tax.
The latest income tax return (ITR) statistics are available for the Assessment Year (AY) 2017-18, which corresponds to the fiscal year 2016-17. A total of 49.8 million ITRs were filed in AY 2017-18. Out of this, 48.7 million ITRs had declared a taxable income of up to ₹5 lakh. This number was 49.3 million for taxable income of up to ₹10 lakh.
To be sure, tax payers in these income categories in total income tax payable is much less than their share in number of ITR filings. In AY 2017-18, ITR filings of up to ₹5 lakh accounted for only 18% of total income tax payayble. This figure increases to 25% for ITR filings with income of up to Rs 10 lakh. This means that almost 75% of income tax payable in India came from just 1% of ITR filings.
Another factor worth looking at is the occupation-wise break-up of potential beneficiaries from the tax relief announced in the budget. The income tax department gives occupation-wise break up of ITR filings with taxable incomes. Out of the total 49.8 million ITRs filed in AY 2017-18, 46.6 million were filed in the salary income category.
The total number of salary income category ITRs filed for incomes up to ₹5 lakh and ₹10 lakh was 35.3 million and 39.5 million. This means that salary income ITR filers would account for 73% and 88% out of the ITRs filed in these two income categories. The short point is that the salaried class will be the biggest gainer from the income tax sops announced in Friday’s interim budget.