Income from capital gains reported by Indian taxpayers surged in the financial year 2020-21 (assessment year 2021-22), the year ravaged by the pandemic, while “salary income” of individuals grew at a much lower pace, as per the statistics released by the tax department recently.
In the year which saw the gross domestic product (GDP) shrink by 5.8%, the income reported as long-term capital gains stood at Rs 3.52 trillion, up 66.7% high on year, while income from short-term capital gains skyrocketed 166.7% to Rs 1.56 trillion, the data showed. The year-on-year rise aggregate income from capital gains was a whopping 89% in FY21.
While the income from salaries rose 5.6% on year to Rs 24.6 trillion in FY21, “business income”, the largest segment which represents the profits made by companies, LLPs and other establishments, too showed a healthy growth of 15.8% to Rs 33.8 trillion.
The tax department data reflects the relative buoyancy witnessed by the capital markets during the pandemic, and a structural shift in income from the household sector to the the large companies.
Meanwhile, 16 individuals in the country reported the annual salary income in the range of Rs 100-500 crore in assessment year 2021-22 (FY21) while 34 showed such income in the Rs 50-100 crore range. This was when salary income — the largest source of income among individual taxpayers — was shown as nil by 54% of the 67.6 million people who filed tax returns in that year.
In the assessment year 2020-21 (FY20), just 8 individuals had reported the highest salary income in the Rs 100-500 crore range, while 40 were in the bracket of Rs 50-100 crore.
As many as 163 individuals reported salaried income in the range of Rs 25-50 crore in FY21 as against 136 in FY20, implying that while a larger segments of individuals saw their income to shrink or not grow in the pandemic year, the adverse impact was not visible in the uppermost layer of income pyramid.
The big jump in income from capital gains during FY21 is in sync with the rise in the stock of household gross financial assets. Between June 2020 and March 2023, the stock of household gross financial assets went up by 37.6%.
Households added net financial assets of Rs 22.8 trillion in FY21, nearly Rs 17.0 trillion in FY22, and Rs 13.8 trillion in FY23. The retail and small investors too have apparently benefitted from the flow of funds to the capital markets when the real economy was in bad shape.