The rich people in India do not report their actual income, and they under-report their income, according to Forbes’ rich list and income-tax data, based on an analysis of Lok Sabha election candidates’ affidavits, according to a recent news report. A major part of the affluent group’s capital income does not find its way to the income tax data, according to research done by Ram Singh, a Reserve Bank of India (RBI) Monetary Policy Committee member, which sets interest rates, and director of the Delhi School of Economics.
As per the report, the income-wealth reported by the top wealth groups is extremely small, compared to the rate of return on their assets. It further says that in the reported income-wealth ratio, a one per cent increase in family wealth corresponds to more than a 0.6 per cent decrease, on average.
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Tax avoidance is very common among the ultra-wealthy, according to the research paper called: Do theWealthy Underreport Their Income? Using General Election Filings to Study the Income-Wealth Relationship in India. The research said that the Indian tax is not very progressive, with reference to wealth.
Wealth Indirectly Proportional To Reported Income: The report said that for the bottom 10 per cent of households, reported income is almost double their wealth. While the top one per cent report incomes equal to just three to four per cent of their wealth, for the wealthiest 0.1 per cent, the reported income falls below two per cent of their wealth.
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The research further said that the bottom 10 per cent of wealth groups report incomes that are multiple times their wealth. On the other hand, the incomes reported by the groups at the top of the pyramid are a very small percentage of their wealth. For super-wealthy groups, the reported income relative to wealth comes down continuously until it is reduced to a negligible fraction of their wealth. The research expects the income-to-wealth ratios to decrease in wealth. Yet, the income-wealth ratios reported by the wealthy Indians seem to be very low.
However, in an interesting twist, the report added that the under-reporting of wealth by the rich might be good for the economy. The study said that the rich people's under-reporting of their income reduces their tax liability. Yet, the income-wealth ratios reported by the wealthy Indians seem to be very low, and it leaves more income in their hands or their company’s accounts. This, in turn, could result in higher employment and growth rates for the entire economy.
