Electronically filed income tax returns (ITRs) recorded a sharp rise of 71 per cent to 5.42 crore in financial year 2018-19 (till August 31, 2018) as against 3.17 crore returns till August 31, 2017, data released by the Central Board of Direct Taxes (CBDT) on Saturday showed. A closer look at the income tax returns filed in last financial year, however, shows that the massive surge is largely a statistical aberration.
During 2017-18, 3.17 crore returns were filed till August-end 2017 when the government rules allowed taxpayers to file returns till March 31, 2018, without any penalty. And till March 31, 2018, total 6.74 crore e-Returns were filed.
In the 2018-19 financial year, the tax department announced that returns filed after August 31, 2018, will attract penalty of Rs 5,000. This led to preponement of the returns that would otherwise have been filed between August 31 and March 31 in any given financial year.
For example, salaried individual taxpayers filed 3.37 crore e-returns till August 31, 2018, when compared with 2.19 crore e-returns till August 31, 2017, a jump of 54 per cent. The CBDT data for returns filed in the financial year 2017-18 shows that when there was no penalty on filing returns till March 31, 2018, higher number of returns (3.57 crore) were filed between September 1 and March 31, in contrast to 3.17 crore between April 1 and August 31, taking the total returns during the full year to 6.74 crore.
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While there will be some natural expansion in the tax base, and correspondingly the number of returns being filed, analysts noted that the 70.86 per cent increase is largely due to preponing of filing of e-returns, primarily due to imposition of penalty. An accurate comparison of the number of e-returns though will only be possible after the tax department releases detailed data for e-returns filed till March 31, 2019.
“Earlier, there was no penalty on income tax returns filed till the end of financial year and because of penalty this year, tax assessees paid on time. Also, over the years, steps taken by the government have focused on compliance. For instance, many mailers were sent by the tax department to file tax returns in time or else face penalty and that could have also pushed people to file returns in time,” Divya Baweja, partner, Deloitte Haskins & Sells LLP said.
Another reason for the surge in electronically filed income tax returns could be the heightened enforcement by the government, tax analysts said. Rahul Garg, partner, Direct Tax, PwC said, “The surge in tax returns could be attributed to heightened enforcement by the government through various information channels. The government now gets
to know details of every small purchase done overseas through overseas information exchange channels and sharing of information across agencies. People are aware that through tax data they may be asked to pay later with penalty and therefore, they would have hastened their filings of income tax returns.”
If number of e-returns filed are to register a year-on-year growth of 70.86 per cent by March 31, 2019, then the total number of returns filed need to jump to 11.52 crore in 2018-19 from 6.74 crore returns filed in whole of 2017-18 and 5.42 crore e-returns filed till August 31, 2018.
In a statement showing two datasets on Saturday, the income-tax department had said that the increase in the number of returns reveals “a marked improvement in the level of voluntary compliance of taxpayers which can be attributed to several factors, including the impact of demonetisation, enhanced persuasion and education of taxpayers as also the impending provision of late fee which would be effective on late filing of returns.”
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