Almost all finance ministers of India have faced the challenge of widening the country’s tax net. While the debate over how few people pay income tax in India is old, what is less well-known is that many companies also avoid paying income tax. While only 2% of the population pays income taxes, nearly half of the companies that file income tax returns (ITRs) pay nothing at all.

How to widen the tax net remains a key question with no clear answer. Tax evasion, low wage growth, high unemployment, and high exemption limits mean that very few people qualify to pay income taxes. Additionally, accounting loopholes, low audit quality and income tax relief provided in 2019 have resulted in very few corporations actually paying income taxes. It’s true that the number of tax returns filed by individuals has more than doubled, from 3.35 crore in 2013-14 to 7.54 crore in 2023-24. However, many of these are zero-tax returns, filed simply for compliance purposes. The number of individuals filing zero-income tax returns has more than doubled, from 1.69 crore to 4.73 crore during the same period. The result is that the number of individuals actually paying income taxes has grown at a slow pace between 2013-14 and 2023-24—from 1.66 crore to 2.81.

Rising Exemption Limits

The exemption limit has been raised successively since 2013-14. From Rs 2 lakh, it has gone up to effectively Rs 7 lakh by 2023-24. In 2013-14, as many as half of all returns filed were zero-tax. By 2023-24, that share went up to 63%. Among individuals who pay taxes, almost half (47%) report incomes of up to Rs 5 lakh; 37% earn between Rs. 5-10 lakh, 13% between Rs. 10-25 lakh, and only 1% report income above Rs. 50 lakh.

While hiking the exempt income tax slabs over the years may make political sense, it does not make economic sense, especially when 84% of the population earns less than Rs. 10 lakh per annum—India’s per capita income is just around Rs. 2 lakh—and individuals earning up to Rs. 7 lakh are not required to pay income tax under the new tax regime. As many as 90% of eligible taxpayers in India pay anywhere from no tax to Rs. 1.5 lakh.

The top 1% of ITR filers pay 50% of the total personal income tax collection of India, while the top 9% pay 87% of the total tax, highlighting significant inequality and the challenges in widening the tax net. That’s a huge burden on these top 10% of filers. 

Corporate Filings

The situation among corporations is worse. Of the total 10.7 lakh corporate ITR filers, 57% report zero income, and another 33% earn between Rs. 0-50 lakh. In total, 90% of companies report earnings of just up to Rs. 50 lakh (corporations are taxed on profits, not income). Half (48%) of corporate filers pay zero income tax, while another 36% pay between Rs. 0-5 lakh in income tax. In terms of value, 84% of corporate filers contributed almost nothing to the total corporate tax collections of Rs. 7.16 lakh crore in the assessment year 2023-24. Again, the top 1% of corporate ITR filers pay 85% of total corporate income tax. 

All this highlights significant inequality and raises questions about the financial health of companies in India. Another catch is that agricultural income is exempt from taxation—that is half of India’s population. While that makes socio-economic sense, at least wealthier farmers could be brought under the tax ambit to provide a boost to tax collections.

Personal income tax, corporate tax, and GST collections account for one-third each of the total central government receipts. While tightening efforts to combat tax evasion by both individuals and businesses could bring in additional revenue, there is a limit to direct taxation as well. The government will need to focus on raising revenues through indirect taxes, while also considering the reintroduction of a wealth tax.

(Amitabh Tiwari is a political strategist and commentator. In his earlier avatar, he was a corporate and investment banker.)

Disclaimer: These are the personal opinions of the author

Income Tax Return (ITR) filings for this assessment year crossed a record 7.65 crore by October 31, about 11.7% higher than the 6.85 crore returns filed by November 7 last year, the Income Tax Department said on Wednesday. 
| Photo Credit: Twitter/@IncomeTaxIndia 

 

Income Tax Return (ITR) filings for this assessment year crossed a record 7.65 crore by October 31, about 11.7% higher than the 6.85 crore returns filed by November 7 last year, the Income Tax Department said on Wednesday. 

Moreover, the total ITRs filed so far in this financial year, for all assessment years, also hit an all-time high of 7.85 crore, compared with a total of 7.78 crore ITRs filed in all of 2022-23. 

October 31 was the deadline for taxpayers whose accounts are required to be audited and who do not have any international or specified domestic transactions. Some crucial statutory forms also have to be filed by the same date, and more than 1.44 crore such forms had been filed by Tuesday, the department said. 

By July 31, which was the filing deadline for most taxpayers, total ITRs filed this year had touched a high of 6.77 crore, reflecting a 16.1% increase, with 53.67 lakh taxpayers filing returns for the first time.  

The IT department said most of the returns filed had been verified and processed already. “Out of the 7.65 crore ITRs filed for Assessment Year 2023-24, more than 7.51 crore ITRs have already been verified.,” the department said. “Out of the 7.51 crore verified ITRs, 7.19 crore [or almost 96%] have already been processed” till October 31, it added. 

New Delhi:

The income tax department on Wednesday said a record number of over 7.85 crore ITRs were filed till October 31.

The total number of ITRs (income tax returns) filed in FY 2023-24 for all assessment years up to October 31, 2023 stands at 7.85 crore, an all-time high when compared to total number of ITRs of 7.78 crore filed in FY 2022-23, the I-T department said.

October 31 was the due date for filing of ITRs (other than ITR 7), for taxpayers (not having any international or specified domestic transaction), in whose case books of account were required to be audited.

“The total number of ITRs for AY 2023-24 filed till 31st October, 2023 is more than 7.65 crore, which is 11.7 per cent higher compared to the total number of ITRs of 6.85 crore for AY 2022-23 filed till November 7, 2022, the due date for filing such ITRs in the preceding year, the Central Board of Direct Taxes (CBDT) said in a statement.

Out of the 7.65 crore ITRs filed for AY 23-24, more than 7.51 crore ITRs have already been verified. Further, out of 7.51 crore verified ITRs, 7.19 crore have already been processed till October 31, 2023, almost 96 per cent of the verified ITRs stand processed.

October 31, 2023 was also the due date for filing of some crucial statutory forms like Form 10B, 10BB and Form 3CEB. Total number of various types of statutory forms filed up to 31st October, 2023 stands more than 1.44 crore.

During the peak filing days the e-filing portal successfully handled the traffic, providing a seamless experience to the taxpayers and tax professionals for filing of Forms and ITRs.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)