What Do Car Sales Tell Us About Black Money?

car

All through last week I wrote on the data put out by the Income Tax department sometime back. This is perhaps the last column based around the data.

Take a look at the following table. I know it’s a very large table, but it’s important to reproduce it here. The table gives the details about individuals who pay income tax in India. This is for the assessment year 2012-2013. The income tax returns for the income earned during 2011-2012 were filed during 2012-2013.

Range No of returns Sum of tax payable (in Rs crore)
<0 24 0
= 0 162,47,598
>0 and <=1,50,000 111,28,419 23446
>150,000 and <= 2,00,000 3,02,339 5254
>2,00,000 and <=2,50,000 2,14,437 4790
>2,50,000 and <= 3,50,000 2,64,990 7818
>3,50,000 and <= 4,00,000 86,701 3243
>4,00,000 and <= 4,50,000 69,077 2930
>4,50,000 and <= 5,00,000 58,241 2762
>5,00,000 and <= 5,50,000 48,197 2527
>5,50,000 and <= 9,50,000 1,78,654 12580
>9,50,000 and <= 10,00,000 10,506 1024
>10,00,000 and <=15,00,000 63,876 7746
>15,00,000 and <= 20,00,000 30,016 5171
>20,00,000 and <= 25,00,000 16,795 3740
>25,00,000 and <= 50,00,000 29,881 10229
>50,00,000 and <= 1,00,00,000 11,077 7474
>1,00,00,000 and <=5,00,00,000 5,042 8907
>5,00,00,000 and <=10,00,00,000 266 1788
>10,00,00,000 and <=25,00,00,000 90 1393
>25,00,00,000 and <=50,00,00,000 21 707
>50,00,00,000 and <=100,00,00,000 8 590
>100,00,00,000 and <=500,00,00,000 3 437
Total number of individuals who filed income tax returns 287,66,258 114556
Total number who paid tax 125,18,660 car

In the assessment year 2012-2013, around 2.88 crore Indians filed income tax returns. Of this nearly 56.4% or 1.62 crore did not pay any income tax. The rest, that is, around 1.25 crore individuals paid income tax.

Of the 1.25 crore who paid income tax, nearly 1.11 crore individuals or 89% paid an income tax of less than Rs 1.5 lakh, for the assessment year 2012-2013. In total, these individuals paid an income tax of Rs 23,446 crore. This works out to an average of Rs 21,069. Of course, the median tax paid would be even lower than this.

Hence, 89% of those who paid tax in India in the assessment year 2012-2013, paid an average income tax of just over Rs 21,000 for the year. This means an average income tax of less than Rs 2,000 per month.

This means around 14 lakh Indians (13.90 lakhs to be precise) actually got around to paying some income tax. They paid around Rs 91,110 crore of income tax in total.

It is safe to say here that the average Indian does not pay income tax. Now let’s compare this to some consumption numbers. Take the case of car sales. In 2011-2012, around 25.34 lakh cars were sold.

What does this tell us? In a country where around 13.90 lakh individuals actually pay some income tax, 25.34 lakh cars are sold during the course of the year. In fact, the number of cars sold has continued to be in the range of 23.4-25.6 lakh cars a year, since then. This basically tells us that many people who are buying cars are not paying any income tax.

This could be because of two reasons. One reason could be that those earning income from agriculture, which is tax free, are buying cars. The other and the more likely reason is that cars are being bought with money on which income tax has not been paid i.e. cars are being bought with black money.

Also, if we look at the income distribution of the salaried individuals paying income tax, around 20.2 lakh people had declared incomes between Rs 5.5 lakh and Rs 9.5 lakh, in the assessment year 2012-2013. But the total number of cars sold during the year stood at greater than 25 lakhs. It is safe to say here that those buying cars are earning at least Rs 5 lakh per annum. The question is, who is buying these cars then?

In short, it is safe to come to the conclusion that a significant portion of the cars are being bought by those who have black money.

The good news is that it shouldn’t be very difficult for income tax authorities to figure out who these people are, given the information technology infrastructure that is available these days. Of course, it may not be feasible for them to go after each and every such individual.

The column originally appeared in the Vivek Kaul Diary on May 9, 2016

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

One Response to What Do Car Sales Tell Us About Black Money?

  1. Saikiran says:

    Check out how many cars are bought under companies name, how many cars are used for taxi and commercial purposes ? Both these data will bring more clarity

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