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Incomes of Indians were shrinking even before Covid, pandemic will only make it worse

Tax returns filed by those earning above Rs 50 lakh has seen a contraction of nearly 21%. Those earning between Rs 20 lakh-Rs 50 lakh saw an 8% fall.

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New Delhi: India’s economic slowdown, followed by the Covid-19 pandemic, may have taken a toll on individual incomes of taxpayers in 2019-20, if trends in the income tax returns data are any indication.

According to the data with the e-filing website of the income tax department filed in 2020-21, tax returns contracted in all income ranges of over Rs 5 lakh per annum, with the sharpest fall seen among those earning over Rs 50 lakh a year.

Returns filed by taxpayers declaring an income range of over Rs 5 lakh declined by more than 5 per cent as compared to the previous year, shows the data.

However, overall tax returns have grown over the previous fiscal mainly due to a 15 per cent growth in taxpayers whose income range is between Rs 0-5 lakh.

This data mainly pertains to tax returns filed for the financial year 2019-20 or assessment year 2020-21. Hence, it does not reflect the true extent of the economic fallout of the pandemic on people and their incomes, except perhaps the impact seen in the quarter ended March 2020, when the pandemic hit India. The countrywide lockdown was imposed on 25 March 2020.

ThePrint reached the income tax department spokesperson on 20 April via email and texts for a comment on the data, but there was no response until the time of publishing this report.

Also read: India was on the road to recovery before deadly second Covid wave hit

Significant fall

Data shows that returns filed by taxpayers declaring an income above Rs 1 crore contracted 23 per cent in 2020-21 as compared to the year-ago period.

Similarly, income tax returns filed by taxpayers showing an income between Rs 50 lakh and Rs 1 crore declined by nearly 21 per cent (20.6 per cent) and those showing an income between Rs 20 lakh and Rs 50 lakh contracted 8 per cent.

The decline in the tax returns for income ranges Rs 10 lakh-Rs 20 lakh and for Rs 5 lakh-Rs 10 lakh was 2 per cent and 5 per cent, respectively.

At the same time, those filing tax returns declaring an income up to Rs 5 lakh have risen substantially by 15 per cent, indicating that many have slipped to a lower income category. This trend is mainly seen in the tax return filings of individual taxpayers, data shows.

Graphic: Ramandeep Kaur/ThePrint
Graphic: Ramandeep Kaur/ThePrint
Graphic: Ramandeep Kaur/ThePrint
Graphic: Ramandeep Kaur/ThePrint

There could be several reasons for this, according to economists and chartered accountants.

Firstly, economic slowdown may have adversely hit incomes and jobs in 2019-20 itself. The Indian economy had slowed down sharply to 4 per cent in 2019-20 from 6.5 per cent in 2018-19.

Secondly, some taxpayers may have declared income of less than Rs 5 lakh to benefit from the income tax rebate on taxable income of less than Rs 5 lakh announced in the interim budget of February 2019. But this would explain a contraction in tax returns in the income range of Rs 5 to 10 lakh, and not for the higher ranges.

Also read: Covid lockdowns worsen Modi govt’s fiscal woes fuelled by weak auctions

‘Not a good year’

N.R. Bhanumurthy, vice-chancellor at Bengaluru’s Dr B.R. Ambedkar School of Economics University, said tax returns are a “function of the country’s economic growth”.

“The lockdown was announced in March 2020 but the services sector was impacted much before this leading to widespread loss of jobs. So effectively, starting from the fourth quarter, there was an economic impact leading to uncertainty with regard to future incomes. This would have led to a decline in tax returns among the higher income categories,” he said.

Bhanumurthy added that with an 8 per cent real economic contraction forecast for 2020-21 and tax buoyancy of about 1, the decline in tax returns will be sharper for assessment year 2021-22.

Tax buoyancy reflects the sensitivity of the tax collected to growth in India’s nominal gross domestic product.

Nikhil Vadia, chartered accountant with N.N. Vadia and Co, said 2019-20 was not a good year for the economy and when Covid hit, things got worse.

“When Covid hit India, many companies announced deferral of their year-end bonuses and this would have impacted incomes. Even prior to that, the July 2019 budget was not welcomed by the business community,” he added.

Also read: How India’s oxygen crisis has hit its shipbreaking industry, one of the world’s largest


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