Personal incomes of Indians grew by two-thirds in six years from 2011 but the taxes they paid grew faster in the same period, leaving lesser disposable income in the hands of households each year from 2011 to 2017.
The latest data of incomes and other aggregates have shown that personal incomes of all Indians grew from Rs 68.61 lakh crore in 2011-12 to Rs 115 lakh crore in 2016-17, a growth of over 67% but taxes on incomes and wealth grew at a faster clip of over 116% in the same period.
Taxes on income grew from Rs 1.53 lakh crore in FY12 to Rs 3.31 lakh crore in FY17. This impacted the disposable incomes in the hands of citizens.
The growth in disposable incomes in percentage terms came down each year from 13% in FY13 to a meagre 9% in FY17.
In the UPA years from 2011-12 to 2013-14, Indians saw a 28% increase in their personal incomes but in the first three years of the NDA government at the Centre, from 2014-15 to 2016-17, personal incomes grew only by 19%.
Though the growth in taxes on incomes was slower in NDA years, their impact was not felt as the overall growth in incomes was also slow.
The net impact was that the incomes in the hands of households got compressed. While a combined disposable income with households stood at a little over Rs 67 lakh crore in 2011-12, it grew up to only about Rs 112 lakh crore in 2016-17 in absolute terms. But when compared with India’s inflation rate that averaged 7.7% from 2012 to 2016 and reached an all-time high of 11.16% by 2013, households actually got much less in their hands to spend.
However, a moderate increase in taxes on income in the NDA regime helped it increase the tax base, which along with the implementation of GST, got widened further.
Within a few months of GST implementation, India witnessed a 44% growth in personal advance income tax collections.