Income inequality declining in India, says SBI report

Individual income inequality in the country has significantly declined during FY2014-22 with 36.3 per cent of taxpayers moving up from lower income to the higher income tax bucket, resulting in a 21.3 per cent additional income, according to an SBI report.

The SBI Research Department has, for the first time in the Indian context, used publicly available income tax data to measure the estimates of inequality.

According to the recent data, the ITRs filed by individual taxpayers earning between Rs 5 lakh and Rs 10 lakh climbed by 295 per cent in the assessment years (AY) A 2013–14 and AY 2021–22, showing a positive trend of migration to higher range of gross total income, the report states.

The number of ITRs filed by people earning between Rs 10 lakh and Rs 25 lakh has increased by 291 per cent. The total number of persons filing Income tax increased to 74 million in AY23 from 70 million in AY22. For AY24, 82 million ITRs have been filed by December 31, ’23.

The report also points out that the top 2.5 per cent of taxpayers’ contribution in income has declined from 2.81 per cent to 2.28 per cent during FY14-FY21 which means that the other taxpayers are contributing more.

Another sign of upward mobility is that 19.5 per cent of small firms have transitioned into larger firms through MSME value chain integration and consumption of the bottom 90 per cent of population has increased by Rs 8.2 lakh crore post pandemic, according to the report

The Gini coefficient, which is a measure of income inequality, was calculated using ITR (Income Tax Return) data of taxable income of individuals. The estimate shows that individual income inequality has significantly declined from 0.472 to 0.402 during FY14-FY22, the report states.

The Gini coefficient measures inequality on a scale from 0 to 1, with higher values indicating higher inequality.