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Tuesday, March 31, 2020

Budget 2017: Shocking reason why India had to bite the demonetisation bullet

Arun Jaitley said that against estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing I-T returns for salary income were only 1.74 crore.

By: Express Web Desk | New Delhi | Updated: February 1, 2017 3:21:48 pm
Union Budget, 2017 Union Budget, 2017 Economic Survey, What is Economic Survey, Arun Jaitley, Arvind Subramanian, India economy, demonetisation, demonetisation impact, India news, Indian Express Finance Minister Arun Jaitley (File Photo)

In his Budget Speech for 2017, Finance Minister Arun Jaitley gave a good explanation on why the government had opted for demonetisation and why it wanted to increase the tax base. Jaitley said India’s tax to GDP ratio is very low, and the proportion of direct tax to indirect tax is not optimal from the viewpoint of social justice. And he has some shocking figures to back his claims that India’s “direct tax collection is not commensurate with the income and consumption pattern” of the economy.

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Jaitley said that against estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing I-T returns for salary income were only 1.74 crore. While there were 5.6 crore informal sector individual enterprises and firms doing small business in India, the number of returns filed in this category were only 1.81 crore.

Similarly, out of the 13.94 lakh companies registered in India till March 31, 2014, just 5.97 lakh companies have filed their returns for assessment year 2016-17. Even out of this, about 2.76 lakh companies have shown losses or zero income and 2.85 lakh a profit before tax of less than Rs 1 crore. Only 28,667 companies showed profit between Rs 1 crore and Rs 10 crore, and only 7781 companies have profit before tax of more than Rs 10 crore.

In the case of individuals, 3.7 crore filed tax returns in 2015-16, but with 99 lakh showing income below the exemption limit of Rs 2.5 lakh per annum. Then 1.95 crore showed income between Rs 2.5 and Rs 5 lakh, and 52 lakh Rs 5 and Rs 10 lakhs. Only 24 lakh people showed income above Rs 10 lakhs. Even among the 76 lakh individual assesses who declare income above Rs 5 lakh, a major chunk of 56 lakh are in the salaried class. Just 1.72 lakh people have declared income above Rs 50 lakh.

The finance minister said that this can be contrasted to the fact that in the last five years, more than 1.25 crore cars have been sold, and 2 crore people flew abroad for business or tourism. “From all these figures we can conclude that we are largely a tax non-compliant society. The predominance of cash in the economy makes it possible for the people to evade their taxes. When too many people evade taxes, the burden of their share falls on those who are honest and compliant,” the FM concluded.

He said the data mining from demonestisation will “help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation”.

He said preliminary analysis of data received about deposits made in old currency after November 8 presents a revealing picture. From November 8 to December 30 2016, deposits between Rs 2 lakh and Rs 80 lakh were made in about 1.09 crore accounts with an average deposit size of Rs 5.03 lakh. Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of ` 3.31 crores.

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