The Rise Of The Mega—Crorepati’s
Over the past three years, India has seen a remarkable increase of nearly 58,000 crorepati taxpayers, marking a 51% surge. The driving forces behind this atypical trend warrant exploration.
Despite the severe economic repercussions triggered by the pandemic, tax data reveals that affluent Indians have actually augmented their wealth.
Notably, even amid the bleak economic phase, there has been an impressive rise in individuals joining the income-tax bracket of Rs 1 crore and above. This contradicts conventional expectations and strengthens the narrative of a K-shaped recovery, implying that the wealthy have experienced increased prosperity.
Tax Paying Crorepati’s
During the last three fiscal years, India has witnessed the addition of 57,951 new crorepati taxpayers—a substantial figure considering the economic contraction and job losses due to the pandemic.
The count of individual taxpayers with earnings exceeding Rs 1 crore has escalated from 1,11,939 in the pre-Covid year of 2019-20 to 1,69,890 in 2022-23—a remarkable uptick of 51%.
This data, regularly released by the Central Board of Direct Taxes (CBDT), only exhibited a decline once during this period: in 2020-21, when the number of taxpayers in the Rs 1 crore-plus bracket dipped to 81,653 due to repeated lockdown measures implemented to contain the virus spread.
What Could Have Led To This Mega Boom?
Experts in the tax field and income-tax officers have stated that many reasons and factors contribute to this extraordinary trend.
These include improved collation of income and tax-related information, an upswing in stock markets and the startup sector, robust growth in high-paying occupations, and even supplementary income-generating activities.
Going back seven years to 2016-17, merely 68,263 taxpayers possessed a taxable income of over Rs 1 crore.
Pandemic Related Profits
“This exceptional growth does not take me aback,” notes R Prasad, former CBDT chairman. “When numerous companies became remarkably profitable during the pandemic, their CEOs and senior management likely reaped the most substantial benefits. Typically, middle management and lower-level employees see only routine salary increments.”
While the tax department doesn’t provide a breakdown of salaried versus non-salaried taxpayers, experts suggest that more than half of these crorepati taxpayers are likely to be individuals receiving a salary.
Vikas Vasal, a tax partner at Grant Thornton Bharat, believes the sharp upsurge in taxpayers within this bracket reflects both economic progress and enhanced tax compliance management.
“Despite the pandemic, sectors such as IT, ITeS, consulting, and financial services thrived,” he states.
“Additionally, the startup sector, which is currently experiencing a funding slowdown, was previously flush with investments, offering high-paying jobs and Employee Stock Ownership Plans (ESOPs) to attract skilled professionals.”
ESOPs involve granting company stocks to employees.
Sudhir Kapadia, a tax partner at EY India, attributes another cause for the influx of crorepati taxpayers to the stock market boom.
“Numerous short-term retail investors in listed Indian securities benefited from the sustained rise in stock indices during the Covid period,” he asserts, underscoring the role of startups and unicorns in generating high-income earners.
India’s benchmark index, the Sensex, surged from under 26,000 points in March 2020 to nearly 59,000 by March 31 of this year. This ascent empowered many retail investors to amass wealth, subsequently elevating some of them into the Rs 1 crore-plus tax bracket, owing to substantial incomes from capital gains.
Kapadia also emphasizes the digitization of tax administration and the comprehensive data compilation from individual taxpayers, as well as the formalization of the economy, as pivotal drivers for the rapid rise in taxable income among this demographic.
In the fiscal year 2022-23, a total of 269,184 taxpayers—encompassing companies, trusts, local authorities, and Hindu undivided families—were subject to taxes on incomes exceeding Rs 1 crore, according to the CBDT. Among them were 66,397 companies, 25,262 firms, and 3,059 trusts.
Just before the pandemic, in FY 2019-2020, 53,679 companies reported incomes surpassing Rs 1 crore, indicating a 23% growth in this tax bracket for companies over three years, as opposed to the 51% increase seen among individuals.
Vikram Doshi, a tax partner at Price Waterhouse & Co, outlines a series of events contributing to more individual taxpayers entering the Rs 1 crore-plus tax bracket. “When the pandemic commenced, companies laid off numerous employees. However, a significant surge in hiring followed soon after. Salaries of select individuals notably increased during this period,” he explains.
“Furthermore, moonlighting pushed the income levels of highly salaried individuals even higher. As they started receiving income from multiple companies, all within the legal framework, these augmented earnings, combined with capital gains from stock sales, propelled many individuals into the higher tax bracket of Rs 1 crore-plus.”
He also notes that certain companies shifting their perquisites to cash have played a role in this trend.
Although over 66,000 companies with incomes exceeding Rs 1 crore (FY2023 figures) file tax returns annually, only listed companies disclose the remuneration of their senior management.
Among listed companies, a mere 754 entities have unveiled employee remuneration for 2022-23. Among them, 1,161 individuals received pay packages exceeding Rs 1 crore, based on data compiled by the ET Intelligence Group (ETIG).
The taxable income of numerous high earners could potentially rise further once other sources of income, including capital gains, are incorporated when filing tax returns.
Meanwhile, the number of taxpayers falling within the income bracket of Rs 50 lakh to 1 crore rose from 2,30,163 in 2019-20 to 3,32,065 in 2022-23—a 44% increase over three years, slightly below the growth rate observed among taxpayers in the Rs 1 crore-plus bracket for the same period. A portion of these assesses may potentially migrate to the higher bracket in the years ahead.
Requesting anonymity, a senior income-tax officer reveals that “non-salaried, non-business income, primarily stemming from the sale of land and properties,” has also contributed to the surge in crorepati taxpayers. “Moreover, compliance has improved significantly nowadays.
The concept of concealing a second bank account is fading away due to more accurate reporting by banks. It can’t be denied that some individuals still evade taxes using cash, gold, and precious stones. Consequently, the number is likely to increase further,” the officer adds.
The number of high-income earners and taxpayers is projected to continue growing, according to Vasal from Grant Thornton.
“Despite numerous global challenges, be they geopolitical or economic, the Indian economy remains a shining example. With increasing economic prosperity, we should expect a substantial surge in high-paying jobs and incomes,” he predicts. “I’m putting my bet on the stock market. If the market continues to climb, the number of crorepati taxpayers is destined to rise as well.”
The Last Bit, The trajectory of crorepati taxpayers in India over the past three years paints a complex picture of economic dynamics and individual financial prosperity.
From the unexpected rise during the pandemic’s darkest days to the convergence of factors such as stock market booms, startup successes, and better tax compliance, this phenomenon is a testament to the resilience of India’s economic landscape.
While this growth raises important questions about wealth distribution and equitable recovery, it also underscores the role of various economic forces in shaping the financial destinies of individuals.
As the nation strives through global challenges and for continued prosperity, the ever-evolving number of high-income taxpayers is likely to remain an intriguing area of exploration.
