New Delhi, May 28 -- India's lower-income taxpayers are rapidly exiting the return-filing net after successive tax relief measures raised the basic exemption threshold, reshaping the country's taxpayer profile. Tax returns filed by individuals earning up to Rs.5 lakh annually fell by more than half to 27.6 million in 2025-26 from the post-pandemic peak of 56.5 million in 2023-24, according to I-T data reviewed by Mint. The sharp decline follows the government raising the tax exemption threshold under the new tax regime from Rs.2.5 lakh to Rs.3 lakh effective FY24. In the first year after the relief took effect, return filings from this income group fell about a third to 38.1 million. Returns for income earned in a financial year are filed in the subsequent year. With effect from FY26, the basic exemption limit has been raised further to Rs.4 lakh, a shift likely to reflect in returns filed in 2026-27.Individuals below the exemption threshold are generally not required to file returns unless they meet specific conditions such as high electricity consumption, foreign travel spending or ownership of foreign assets. Those above the threshold must still file returns even if rebates reduce their final tax liability to zero. Return filings also depend on factors such as tax exemption thresholds, participation and exit from the workforce, changes in income, and death. Vikas Sharma, lead-personal tax at AKM Global, said the sharp decline in return filings among individuals earning up to Rs.5 lakh reflects policy changes rather than weaker tax compliance. The decline has also altered the composition of India's tax return filing base. For six years through 2024-25, taxpayers with income up to Rs.5 lakh formed the largest filing category. In 2025-26, however, those earning between Rs.5 lakh and Rs.10 lakh became the biggest segment, data showed. Individuals reporting income more than Rs.5 lakh jumped from 23.4 million in 2023-24 to 47.5 million in 2024-25 and to 54.5 million in 2025-26, the data showed. Neeraj Agarwala, senior partner at Nangia & Co. LLP, said the numbers suggest a shift in the composition of return filers from the below Rs.5 lakh income bracket to higher income brackets.The number of individual taxpayers filing returns above Rs.5 lakh has increased, while total return filings comprising all tax return forms have moderated between FY2023-24 and FY2024-25, he said. "One possible explanation is that individuals below the basic exemption threshold, particularly those without excess TDS or refund claims, may no longer see a need to file returns. Additionally, automated tax scrutiny and stricter compliances may be pushing taxpayers into higher income slabs," said Agarwala....