The Economy as Reflected in Income Tax Data

Income tax returns provide a window of information to understand trends in the underlying economy, especially, for the formal economy. In this article, the author juxtaposes macro data from the national accounts with data from returns to reflect on changes in formalisation in the economy. The article uses information from income tax returns for India for the period 2012/13 to 2018/19 to show that there is increase in formalization in the economy, both in terms of increase in the number of wage earners filing returns and in terms of the incomes of non-corporate businesses reported for tax.