While the Centre had attributed the 25% increase in the number of Income Tax Returns (ITRs) filed this year to the success of demonetisation and its ‘Operation Clean Money’, data released recently by the Income Tax department shows that individuals, companies and other entities with income of Rs 5 lakh and below accounted for 69.42 per cent of the total increase.
This implies that while compliance may have improved, since the bulk of the new tax payers are those with annual income of Rs 5 lakh and below, it will hardly boost personal tax collections in the near term. That’s because the tax liability of this category of new tax payers is limited given their relatively low income threshold — with the first tax slab of 10 per cent kicking in only after Rs 2.5 lakh – and with tax saving options on offer.
“This means that the majority of the new taxpayers who have filed the tax returns would be contributing almost nothing to the tax revenues. The tax department will have to aggressively pursue the rest of the taxpayers to pursue the trail left behind after the demonetised currency was deposited back,” said Amit Maheshwari of Ashok Maheshwary & Associates LLP.
The 2016-17 Economic Survey too had said that “while ITR numbers up 25% this year, but bulk of it small tax payers the tax base did expand after demonetisation… the average income reported of the new taxpayers — Rs 2.7 lakh – was not far above the tax threshold of Rs 2.5 lakh and, as a result, the immediate impact on tax collections was muted. The full effect on collections will materialise gradually as reported income of these taxpayers grows,” the survey had said.
In August, the Central Board of Direct Taxes (CBDT) had said that there was a 25 per cent increase in the number of ITRs filed between April 1 and August 5. According to a statement by the tax department, the number of returns filed as on August 5 stood at 2.83 crore as against 2.27 crore filed during the corresponding period of 2016-2017, registering an increase of 24.7 per cent compared to the growth rate of 9.9 per cent in the previous year. The increase in total returns between April and August 2015-16, and the corresponding period in 2016-17 is 55.95 lakh. Of this, the returns filed by the below Rs 5 lakh category was 38.84 lakh, or 69.42 per cent of all returns filed.
According to the tax data, of the 2.83 crore returns filed between April 1 and August 5, 2.03 crore returns are from individuals, companies and entities which have income of Rs 5 lakh or below. Apart from this, only 76.49 lakh individual assessees have filed tax returns declaring income above Rs 5 lakh between April 1 and August 5 .
The government’s direct tax collections grew 19.2% in April-July, the first four months of this fiscal to Rs 1.90 lakh crore. According to CBDT, direct taxes collected during these four months account for 19.5% of the total budget estimate of direct taxes for fiscal 2017-18.
In February, Union Finance Minister Arun Jaitley during his Budget speech had said that the direct tax collection in India is not commensurate with spending. Explaining the need for widening the tax net, he had said that only 76 lakh individual assessees had declared income of above Rs 5 lakh and at least 56 lakh such assessees are in the salaried class. “India is a largely tax non-compliant society thanks to the presence of large cash economy which allows tax evasion,” the FM said.
According to tax data, only 45,430 individual assesses have filed e-returns between April 1 and August 5, declaring an income of over Rs 1 crore. The data released by the tax department last year also showed that only one per cent of the total Indian population paid tax for assessment year 2012-13 and 5,430 individuals paid more than Rs 1 crore as direct tax.
Last year, economist Thomas Piketty had said that he hoped the Indian elite would pay more taxes on wealth and income, as India’s tax to GDP ratio of less than 11% is insufficient to meet its challenges of inequalities.
A December 2002 report by the Task Force on Direct Taxes headed by Vijay Kelkar had said that one of the biggest challenges for the tax department will be “to bring the missing middle — mainly urban, self-employed service sector professionals who, advertently or unwittingly, have dropped out of the tax base — into compliance, through the right mix of communication, education and enforcement”.