A new study by SBI Research has revealed that income inequality has declined in recent years, supporting the trend of upward migration through increased income and the ascent of the Indian middle class. 

The report quoting CBDT data, states that the Income Tax base is widening by the year and the number of persons filing Income Tax Return increased to 74 million in Assessment Year 2022-23 from 70 million in AY 2021-22.  For the Assessment Year 2023-24, a total of 82 million Income Tax Returns have been filed till 31 December 2023.

The SBI report further observes that ITRs filed by individual taxpayers earning between Rs 5 lakh and Rs 10 lakh climbed by 295% in the assessment years (AY) 2013–14 and 2021–22, showing a positive trend of migration to higher range of gross total income. The number of ITRs filed by people earning between Rs 10 lakh and Rs 25 lakh has also increased by nearly 3 times (291%.) during the same period.

Gini Coefficient is one of the most widely used measures of income inequality.  The Gini Coefficient score lies between 0 and 1, where complete equality would result in a Gini Coefficient of zero and complete inequality would result in 1.  Using this measure, SBI Research has calculated that Gini Coefficient has declined from 0.472 during Assessment Year 2014-15 to 0.402 for AY 2022-23.

 

Meanwhile, the share of Top 2.5% tax payers with income more than Rs 10 crores has declined from 2.81% in 2013-14 to 2.28% in 2020-21.  The share of Top 1% tax payers with income more than Rs 100 crores has fallen from 1.64%  to 0.77% during the similar period. 

"The decline in income inequality is because of a great migration at the bottom of the pyramid; 36.3 per cent of individual ITR filers belonging to the lowest income in FY14 have left the lowest income bracket and shifted upwards resulting in 21.1 per cent more income for such individuals during FY14-FY21," said the report.

SBI Research Report also highlighted rising female labour force participation, visible highlights in income levels of MSMEs and changing consumption pattern post Covid pandemic like people substituting two-wheelers with four wheelers and increased sale of tractors to underline India’s robust economic recovery and bust the myth of the oft repeated ‘K’ shaped growth, where some select sectors perform well while others keep declining.

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