BackOnly 25% of return filers add to tax revenue kitty
Rest claim no tax liability or get their tax outgo back as refunds, says govtThe challenge the I-T department faces in collecting tax has been accentuated by the covid crisis
PremiumOnly a fourth of the 65 million income-tax (I-T) return filers in India contribute to government revenues, while the rest either claim no tax liability or get their entire tax outgo back as refunds, a government official said, seeking anonymity.
Prime Minister Narendra Modi’s appeal on Thursday urging people to pay taxes was an effort to widen the tax base as efforts by the Centre in this direction have had little success. It has been a concern for the government because just around 15 million, including individuals, corporates and Hindu Undivided Families, out of India’s population of more than 1.3 billion have a net tax outgo, Modi said.
Statistics also highlight the massive challenge the income tax department faces in collecting tax, which has been accentuated by the covid crisis. Only agriculture weathered the economic shock caused by the pandemic but this did not help increase tax revenue as farm income is exempt from taxation.
The change in personal I-T slabs announced in the interim budget of 2019, and subsequently retained in the Union budget in July, also led to lower tax collections. The change was made to give relief to individuals with income of up to ₹5 lakh, who will have to file returns but not pay tax. “This has benefited about 20 million people," said a second official, also requesting anonymity.
The number of people declaring taxable income of more than ₹5 lakh has grown from 6.9 million in assessment year 2014-15 to 7.8 million, 9.6 million, 11.3 million and 14.5 million in subsequent years, according to finance ministry data, the official said.
The number of assessees with tax outgo is small. However, going by the definition of taxpayer under the I-T Act, the count should be higher as it covers all individuals who filed a return or had tax deducted at source, even if the return was not filed.
Widening the tax base has been a priority for tax authorities. This has led to increasing use of technology and data analytics and data sharing with the indirect tax administration and capital market regulator. It has also resulted in extending the coverage of taxes to be deducted at source and setting limits on cash transactions.
The government witnessed backlash from traders and small businesses when the goods and services tax (GST) was rolled out in 2017 to expand compliance. Eventually, many features of GST, including the threshold for a liberal tax payment scheme for micro, small, and medium enterprises were eased because of pressure from small enterprises.
Scaling up the faceless assessment scheme to all, barring a few, is likely to shield the department from allegations of harassment by field officers. For businesses, compliance costs are expected to reduce with improved privacy and confidentiality of information, said Abhishek A. Rastogi, partner, Khaitan and Co., a law firm.
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