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25% Growth in Income Tax Returns: Is Widened Tax Net an Illusion?

The extra tax revenue could be due to increased taxable salaries due to the Seventh pay commission. The taxable income of bureaucrats, teachers, and other employees have increased as a result of the pay commission.

Tushar Dhara | News18.com

Updated:August 8, 2017, 4:06 PM IST
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25% Growth in Income Tax Returns: Is Widened Tax Net an Illusion?
Image for representation.(Photo: Reuters)
New Delhi: Income Tax returns filed for the last financial year (FY 2016-17) have risen by 24.7% over the year before. According to Finance Ministry figures released on Monday, a total of 2.82 crore people filed returns, compared with 2.26 crore last year. Even advance tax collections have showed a healthy increase of almost 42%. But are these increases a new normal or a fallout of the extraordinary events of the past year?

That is the question vexing tax specialists and economists. Numbers by themselves don’t mean anything until the disaggregated data is analyzed. Moreover, there is no one on one correlation between the increase in the number of I-T returns filed and the increase in direct tax collections. All one can say so far, according to tax experts, is that compliance has gone up this year.

Consider that the government launched two income disclosure schemes last financial year and demonetised high value bank notes to the tune of 86% of liquidity in the economy. The government’s commitment to rid the economy of black money and cleanse the system of ill-gotten cash is not in doubt. But it was widely reported that people had found ways and means to evade the system, one of them being using Jan Dhan accounts to deposit black money or unreported cash.

“Who are these extra I-T returns being filed by? Are they by people at the income tax threshold of Rs 2.5-3 lakh or are they by higher earners? Till such data is made public, it is difficult to draw definite conclusions except that more people have filed returns this year,” Satya Poddar, a tax consultant with Ernst & Young told News18.

“Many Jan Dhan account holders were recruited by crooks to deposit money during demonetization and it is possible that it is these people who have filed the returns to complete the loop and avoid scrutiny by the tax department,” Poddar added.

There are other possibilities. One is that if indeed the additional returns were filed for higher incomes, it could be people who deposited money under the voluntary disclosure scheme that the government opened last year. They would need to file returns to claim a refund.

Or, the extra tax revenue could be due to increased taxable salaries due to the Seventh pay commission. The taxable income of bureaucrats, teachers, and other employees have increased as a result of the pay commission.

The reasons for an increase in tax revenues are better economic performance, increased compliance and tax legislation that encourages tax payers to pay. Out of these reasons, there has not been that much improvement in the economy to justify a 42% increase in tax collection, Poddar says. Neither has the government instituted radical tax legislation. The only reason left is increased compliance. But the reasons for that are still unclear. If the figures next year are consistent with the current numbers, then one can say that India has moved to a new tax normal.
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