In this Hindu article Senior Fellow Praveen Chakravarty explains why it is not surprising that only 3% of Indians pay income tax:

"India’s per capita GDP is roughly ₹1 lakh, i.e. the average Indian earns a lakh of rupees every year. Given India’s large income inequality, it can also be inferred that when the average income is ₹1 lakh, a greater majority of Indians earn less than ₹1 lakh while a small number at the top earn large amounts. However, the income tax exemption threshold in India is ₹2.5 lakh, i.e. anyone earning below ₹2.5 lakh need not pay income tax

Find the full article in TheHindu here.