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.