Income Tax Progressivity: Do India’s Wealthy Underreport?
Why in the news
A research paper in April 2025 challenged the belief that India’s personal income tax (PIT) is progressive, arguing it may be regressive at the very top.
Key facts
- Author: Professor Ram Singh, Director, Delhi School of Economics; the paper asks whether the wealthy underreport income, using election filings.
- Data: CBDT, election affidavits of candidates, Forbes India’s Top 100 Wealthiest list.
- Many rich taxpayers are income-poor but asset-rich, shrinking their tax bills.
| Group | Finding |
|---|---|
| Top 0.1% households | Reported income only 8% of the national average income-to-wealth ratio |
| Forbes-listed families | Declared one-twelfth of what a typical household with similar wealth would |
| Top 0.1%, effective tax | About 10% of capital income |
| Forbes billionaires | About 5% of capital income |
Loopholes
- Unrealised capital gains, complex corporate and trust structures, offshore assets and assets missing from yearly declarations.
Implications
- The richest can pay a lower effective rate than many middle-class taxpayers; redistribution weakens and inequality grows.
Recommendations
- Asset-based taxation such as wealth tax or estate duties, and better capital-gains tracking.
- Merge wealth data from filings, ownership records and disclosures; use AI and analytics on high-net-worth individuals.
Exam angle
- PIT: a levy on individual earnings; progressive means higher earners pay proportionally more.
- Data sources: CBDT, affidavits, Forbes India.