A year after Prime Minister Narendra Modi pointed to troubles faced by citizens at the hands of income tax officials, the topic of tax compliance will again find a mention in his address to the nation on August 15. The Prime Minister is expected to highlight the increase in tax compliance as reflected by the recent surge in income tax returns filings as the successful result of the measures taken by the tax department in the aftermath of demonetisation of Rs 500 and Rs 1,000 currency notes in November last year.
“A 25.3 per cent increase in ITR filings by individuals is a proof of rise in tax compliance following the steps taken by the tax department after demonetisation. The fact is going to be highlighted by the Prime Minister in his speech,” an official aware of the development said.
Last year, in his address to the nation from Red Fort on the Independence Day, Modi had said that he wants to change the situation wherein middle class is troubled more by income tax officials than even the police. “There is a class across the country, particularly the middle class, higher middle class whom you see troubled more at the hands of the income tax officials rather than the police at times. I have to change the situation and I am trying and I will certainly change it,” he had said.
While the income tax department has attributed the increase in income tax returns filed this year to demonetisation and Operation Clean Money, tax experts have linked the increased compliance by taxpayers to higher enquiries made by the tax department after demonetisation last year.
The increased tax compliance figures, however, have not translated into higher tax collections as was mentioned in the Volume two of Economic Survey for 2016-17 that was released on Friday. Chief Economic Adviser Arvind Subramanian on Friday said the government has added 5.4 lakh new taxpayers due to demonetisation, but the reported taxable income hasn’t increased that much. The Survey notes, “the growth of taxpayers post-demonetisation was significantly greater than in the previous year (45 per cent versus 25 per cent). The addition amounted to about 5.4 lakh taxpayers or 1 per cent of all individual taxpayers in just a few months. The addition to the reported taxable income (of these new payers) was about Rs 10,600 crore. So, the tax base did expand after demonetisation. It is, however, interesting that the average income reported of the new taxpayers-Rs. 2.7 lakh- was not far above the tax threshold of Rs. 2.5 lakh, so the immediate impact on tax collections was muted.”
Last month, using the information received through Statement of Financial Transactions from banks and financial institutions in the second phase of ‘Operation Clean Money’, the Income Tax Department had identified 5.56 lakh individuals whose tax profiles were inconsistent with the cash deposits made by them after demonetisation. Another 1.04 lakh persons who did not disclose all bank accounts during e-verification in the first phase of Operation Clean Money were also identified by the tax department.
In the first phase of Operation Clean Money launched on January 31 this year, the tax department had sent communications to around 18 lakh individuals asking them to respond online to queries related to deposits made during November 9-December 30. Out of the 17.92 lakh persons to whom the queries were sent by the tax department under the first phase of Operation Clean Money, 9.72 lakh persons had responded to the department as per pre-defined parameters of sources of the cash deposits.
As on August 5, which was the extended deadline for filing income tax returns this year, the I-T returns filed rose 24.7 per cent year-on-year to 2.83 crore returns as against 2.27 crore returns filed during the corresponding period last year. While the number of I-T returns filed by individuals (that account for 98.7 per cent of total ITR) jumped 25.3 per cent from last year to 2.79 crore up to August 5 as against 2.23 crore returns a year ago, personal income tax under self assessment tax grew 34.25 per cent over the corresponding period in 2016-17.
“The effect of demonetisation is also clearly visible in the growth in direct tax collections…” CBDT said on Monday, while releasing the data.