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10th January 2024 (11 Topics)

Income inequality declines, says SBI research unit

Context

Income inequality has declined in India with a higher tax base and a shift in taxpayers from lower income to higher income tax bracket, the Economic Research Department of the State Bank of India said in a report.

Key Highlights -

  • Shift in Taxpayer Dynamics
    • The Economic Research Department of the State Bank of India reports a decline in income inequality in India.
    • The shift in taxpayers from lower to higher income tax brackets contributes to this decline.
  • Taxpayer Migration and Additional Income
    • Approximately 3% of taxpayers have moved from lower to higher income tax brackets, resulting in a substantial 21.3% increase in overall income.
    • The top 2.5% of taxpayers' contribution to income declined from 81% in FY14 to 2.28% in FY21.
    • Individual taxpayers in the income range of Rs 5 lakh to Rs 10 lakh experienced a remarkable 295% increase in income between AY 2013–14 and AY 2021–22.

Changing Landscape of Firms and Consumption Trends

    • Small firms transitioning into larger entities through MSME value chain integration.
    • Consumption trends, such as the surge in food orders through platforms like Zomato, indicate a diminishing wealth gap.
  • Top Taxpayers' Share and Trends
    • In FY14, the combined income of the top 23 individuals with earnings over Rs 100 crore was 1.64% of the total income, dropping to 0.77% with 136 individuals in FY21.
    • Growth is observed across income classes, reducing skewness and converging incomes towards the middle.
  • Decline in Two-Wheeler Sales and Substitution Effect
    • Refuting claims that declining two-wheeler sales signify rural distress, the report highlights a preference shift to four-wheelers.
    • Auto loans remain robust, with credit deployment at 1.8 times the pandemic level.
  • Female Tax Filers and Geographical Disparities
    • Female tax filers constitute around 15% of individual tax filers.
    • Certain states like Kerala, Tamil Nadu, Punjab, and West Bengal have a higher share of female tax filers, warranting further investigation for broadening tax base.
  • Consumption Trends and Refutation of Distress Claims
  • Consumption patterns, including data from Zomato, challenge claims of widespread distress.
  • Around 0.44 crore active Zomato users in semiurban areas suggest rising income groups transcending conventional boundaries.
  • Income Tax Return (ITR) Filing Trends
    • ITRs filed by individuals earning between Rs 10 lakh and Rs 25 lakh increased by 291%.
    • The total number of persons filing income tax rose to 7.4 crore in AY23 from 7 crore in AY22.
  • Gini Coefficient and Overall Income Inequality
    • The Gini coefficient for taxable income decreased significantly from 0.472 to 0.402 during FY14FY22, indicating a reduction in overall income inequality.

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