Claiming the success of demonetisation in increasing tax compliance, the government said it added 1.06 crore new taxpayers in the financial year 2016-17, almost 25 per cent more than the previous year.
Records accessed by The Indian Express reveal a massive spike in the number of “stop filers” in the same year, reversing a four-year trend. Stop filers are individuals who filed returns in the earlier years but did not do so in the current year even though they are liable to do so. They do not include taxpayers who have passed away or whose PAN cards have been cancelled or surrendered.
In 2016-17, the number of stop filers jumped 10-fold to 88.04 lakh from 8.56 lakh in 2015-16.
This is the highest increase in almost two decades since 2000-01, tax officials said. The number of stop filers was consistently falling from 37.54 lakh in fiscal 2013 to 27.02 lakh in fiscal 2014, 16.32 lakh in fiscal 2015 and 8.56 lakh in fiscal 2016.
The spike in stop filers, according to officials, could be due to loss of jobs or drop in income due to fall in economic activity following demonetization of Rs 500 and Rs 1,000 notes which added up to almost 86 per cent of the total currency in value terms.
The radical policy decision of noteban remains a contentious issue since the GDP data for 2016-17, which was originally estimated at 7.1 per cent, was revised to 8.2 per cent in January end this year.
“Typically, the number of stop filers reflects a compliance and enforcement gap, which the tax administration fails to enforce. But this huge increase in stop filers for 2016-17 cannot be attributed to sudden changes in compliance behavior. The spike could be due to a fall in income or loss of jobs during the year,” said a tax official who did not want to be named.
The Indian Express mailed a detailed questionnaire to the CBDT on March 28. While the CBDT clarified on the trend in “dropped filers,” which is a different category and consists of taxpayers dropped during the year due to death and migration of PAN, it did not comment on stop filers.
In 2016-17, tax data also shows a sharp drop of more than 33 lakh TDS (tax deducted at source) deductees, who did not file returns in the past. This too may imply that persons who undertook some specified transactions in previous year, did not undertake it during the year in question, suggesting a fall in economic activity, said another tax official.
Responding to this, the CBDT said: “There are a large number of persons (more than 1.75 crore) in whose case TDS/TCS is deducted, but who do not file return. Majority of such persons do not have taxable income. Assessment year wise analysis of such taxpayers and the reasons for any unusual variation in their numbers over different assessment years will require some more time.”
Tax officials also said a change in the definition of terms such as tax base, taxpayer and new taxpayer, by the Central Board of Direct Taxes (CBDT) in 2016, could be one reason for a 25 per cent jump in India’s taxpayer base to 7.41 crore in 2016-17. In the previous three years too, the taxpayer base consistently grew, although the compounded annual growth rate (CAGR) was lower at about 18 per cent.
In April 2016, the CBDT changed the definition of a tax payer to include people who paid tax through TDS /TCS (tax collected at source) for the financial year, even if they did not file returns. The definition of the tax base was also tweaked to include such persons and others in whose case TDS and TCS has been paid, but returns not filed, in any of the three financial years previous to the year under consideration.
To this, the CBDT said, “The definitions were not changed, rather these non-legal words of common parlance were defined for the first time for consistency within the department and across different time periods. The definition of taxbase and filer base have been consistently followed over last six years and there is no artificial jump in taxpayer/filer data merely on account of a formal definition of these terms.”
Records show that after adopting the new definition in 2016, the tax department added about 1.13 crore TDS deductees — those who had never filed returns — retrospectively to the original taxpayer base of 4.14 crore reported in the assessment year 2013-14, expanding the base to 5.27 crore. The department has added about 39.34 lakh such TDS deductees to the taxpayer base between assessment years 2014-15 and 2016-17.
Under the Income Tax Act, assessment year refers to the year immediately following the financial year in which the income is earned. For example, the income earned in financial year 2012-13 will be assessed and taxed in assessment year 2013-14.