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After reading this article, you will understand the difference between "very few Indians pay income tax" and "India has very few income taxpayers."
I am sure you have heard from many politicians including Prime Minister Narendra Modi that very few Indians pay income tax and millions of people hide their income. But it is the biggest myth. Let us understand step by step.
First, you should know who is qualified to pay income tax in India. According to the last Union Budget by the Finance Ministry, only Indians earning more than ₹5 lakh have to pay an income tax. But how many people in India earn more than ₹5 lakh?
According to Bloomberg, an average American has to pay 22% income tax, for an average Chinese it is 10% and 14% for Germans. Most of the countries have an income tax limit that is below the average income of its citizens, except for India and Bangladesh's tax limit is higher than the average income. Bloomberg added in their report based on the inequality calculations, India only has 3% of people who earn more than ₹5 lakh. That means an average Indian does not qualify to pay an income tax.
It is not because millions of Indians hide their income. India's per capita income is calculated through the country's GDP data. Let's assume for a moment that millions of Indians hide income. But one day they are going to spend that money to buy gold or real estate or other things. And this then will be captured in the GDP data and as result, in per capita income. It is not possible that millions of people hide money without ever using it. And even if people did hide, it will be reflected in the Reserve Bank of India (RBI)'s money supply data.