⁠India’s Wealthiest Underreport Income and Pay Less Tax Than Expected, Data Reveals

A new study has shed light on how India’s wealthiest individuals significantly underreport their income and, in turn, pay far less in taxes than one might expect based on their vast fortunes.

The research, conducted by Ram Singh, director of the Delhi School of Economics and a member of the Reserve Bank of India’s Monetary Policy Committee, finds that the richer an individual is, the smaller the share of their income they report relative to their wealth—a trend that has stark implications for the country’s taxation system and economic inequality.

A Wealth-Tax Mismatch

According to Singh’s analysis of income-tax filings, national accounts, and public disclosures (including election affidavits and the Forbes Rich List), India’s ultra-rich appear to pay disproportionately little in taxes.

“For the wealthiest 0.1% of individuals, the income-tax liability is just around 0.7% of their wealth,” Singh notes. For those on the Forbes List, this figure drops to just 0.4%.

Meanwhile, India’s top 5% of earners pay tax on less than one-fifth of their capital income. In sharp contrast, lower-wealth households report income levels that are often multiple times their total wealth—a signal that the super-rich might be vastly underreporting returns from assets like real estate, agricultural land, and private business income.

Income Falls as Wealth Rises

The study, titled “Do the Wealthy Underreport Their Income?”, highlights a puzzling pattern: as wealth increases, reported income as a proportion of that wealth actually decreases. The paper estimates that every 1% increase in wealth corresponds to a more than 0.6% decrease in the reported income-to-wealth ratio.

“In the bottom 10% of wealth groups, reported income is nearly double their wealth. But in the top 1%, income reported is just 3-4% of wealth. And for the richest 0.1%, it falls below 2%,” Singh explains.

This pattern, he suggests, is not a coincidence—it likely reflects widespread tax avoidance.

Tax Evasion with a Silver Lining?

While the underreporting of income reduces government revenue and highlights inequality, Singh’s paper leaves room for a nuanced perspective. He notes that the money saved through tax avoidance may be reinvested, potentially fueling growth and job creation.

Still, the findings add weight to calls for a more equitable tax regime—especially as income and wealth inequality in India deepens. A World Inequality Lab study last year estimated that the top 1% hold over 40% of India’s wealth, though Singh’s analysis suggests this may still be an underestimate.

Unlike some previous reports, Singh stops short of recommending a wealth tax, instead leaving policy implications open for broader debate.

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