Middle-class Indians income triples to Rs 13 lakh in FY22 from Rs 4.4 lakh in FY13: Report

A recent report from SBI Research revelaed that the average income of middle class has experienced a substantial growth trajectory.

Starting at ₹4.4 lakh in the financial year 2012-13 FY13, it has surged to an impressive ₹13 lakh by FY22.

The report titled 'Deciphering Emerging Trends in ITR Filing: The Ascent of the New Middle Class in Circular Migration' delves into the data on income tax returns (ITR) and highlights how the landscape of India's middle-class income has transformed.

The reasons behind this remarkable shift are two-fold. Firstly, many taxpayers have transitioned from the lower income group to the upper income group, consequently elevating the overall average. Secondly, there has been a noticeable decline in the number of return filers with zero tax liability.

The report sheds light on the middle-class transition over the past decade. In FY11, a staggering 84% of the 16 million tax filers belonged to the income group of up to ₹5 lakh.

However, by FY22, this proportion has decreased to 64% among the 68.5 million ITR filers. This indicates that approximately 13.6% of the population has moved up the income ladder over this period.

Furthermore, there has been a positive trend in the reduction of zero-tax liability returns. These are cases where an individual's taxable income falls below the basic exemption limit, making them exempt from paying taxes. This share has declined from 84.10% in FY11 to 64% by FY22.

Looking ahead, the report forecasts that the average income is set to further increase to ₹49.70 lakh by 2047.

This projection is driven by an expected rise in the number of tax filers and a shift in the distribution of tax filers towards higher income brackets. Additionally, the report estimates that about 25% of ITR filers will move out of the lowest income strata (annual income of up to ₹5 lakh) by FY47.

The report also highlights improvements in timely return filing and processing. In FY22, 75% of the 78 million returns were filed on or before the due date, a significant improvement from the 60% in FY19.

The processing of returns has also become more efficient, with 64% of the 68 million returns filed in FY23 being processed by the due date.

The report not only illustrates the remarkable growth in the average income of middle-class Indians but also offers insights into the changing dynamics of the workforce and tax filers.

It suggests strategies to enhance accuracy in capturing migration patterns and socio-economic characteristics, as well as leveraging technology to streamline the tax filing process.