Numbers released recently regarding increase in the number of persons filing income tax returns do not come as a surprise given the focus in recent years on getting more people into the tax net. But the increase does not bring cheer since the proportion of taxpayers in the country is still relatively small and many tax returns have zero-tax liability. Around 7.4 crore persons filed income tax returns in FY23, recording an increase of 6.5 per cent over the previous fiscal year.
The growth in returns filing for FY23 was twice the growth recorded in the previous fiscal year and seems to have been driven by two factors. One, the strategy to expand the goods and services on which tax is collected at source seems to be resulting in more tax returns being filed so that these taxes can be reclaimed. Items such as large cash withdrawals, overseas remittance, purchase of luxury car, overseas tours, sale of cyrpto-currencies and net winnings in online games have been added to the list over the last two years making it difficult for persons with high-income to avoid filing returns. The new Form 26AS which contains information on all specified financial transactions relating to a PAN number is also making it easier for people to identify taxable transactions, leading to better compliance.
That said, the sharp increase in zero tax returns in recent years is cause for concern. Around 70 per cent of the total returns filed in the last three fiscal years had zero-tax liability. This could imply a) that the Centre’s measures are leading to more tax return filing, but people are finding ways to avoid paying taxes, or b) people with no tax liability such as senior citizens are being forced to file tax returns to claim the TDS or TCS. Of note is the fact that number of tax filers who paid income tax has declined from 3.57 crore in 2019-20 to 2.23 crore in 2022-23. In other words, less than 2 per cent of the country’s working age population is currently filing taxes.
But despite these falling numbers, income tax collections have grown 65 per cent from ₹4.92-lakh crore in FY20 to ₹8.15-lakh crore in FY23, showing that the Centre is increasing the tax burden on the existing pool of taxpayers. This is far from equitable. The Centre instead needs to tackle the elephant in the room; make agricultural income taxable. With around one-fifth of the country’s GVA being derived from the agriculture sector, this can give a considerable boost to revenue. Smaller farmers are unlikely to be impacted since their income is likely to be below the minimum threshold, anyway. While the Centre has simplified the tax filing process, income tax rates also need to be lowered substantially, especially in the new tax regime, so that compliance increases. Formalisation of the economy needs to be accelerated with the help of GST. There needs to be information sharing between the direct and indirect tax departments to identify high income tax-evaders.
aniltikotekar4sme.com 