Jump in e-filing of returns means enhanced compliance
If personal income taxes rose 21% in a year when the economy grew at among the lowest in many years, the credit has to go the 34% jump in the filing of e-returns in FY13. Thanks to a dramatic jump in e-returns over the years, around two-thirds of all income tax payers in the country file their returns electronically?from a mere 21.7 lakh in FY08 to 1.6 crore in FY12, this number rose to 2.15 crore in FY13, of which 7.5 lakh were filed on the last day of the financial year. The income tax (I-T) department is of the view the number of e-returns will cross 2.75 crore in FY14?more than 1.6 lakh e-returns have been filed in the first half of this month. Having as many e-returns as possible is critical for improving compliance as the moment an individual takes a permanent account number (PAN) and files an e-return, all information submitted by the person becomes part of the national tax information network. This can then be utilised for matching with the information the department is collecting on investments from different agencies to identify mismatches between the annual expenditure and earnings shown in the income tax returns. This is how, for instance, the taxman knows India just had 14.6 lakh persons declaring a taxable income of more than R10 lakh while 16 lakh persons made credit card payments of more than R2 lakh in FY13 and that 52.4 lakh persons spent more than R2 lakh buying mutual funds in FY13. Indeed, the letters sent to more than 1 lakh individuals in the last few months who have not filed their returns, despite making substantial financial transactions, from a list of over 12 lakh people prepared by the I-T department, was just a pilot of a larger exercise of the department, which it wants to conduct on a continuous basis with proper reporting and follow-up of the cases taken up.
A similar exercise using infotech infrastructure to nab those evading payment of service tax has also worked well for the revenue department. Since service taxes have to be electronically filed, the I-T department has put in software that does not accept expenditure, on courier services for instance, if the vendor does not have a valid service tax number. What that means is that it is in the interest of larger firms to ensure the vendors they use are also service tax compliant. This is how the Central Board of Excise and Customs (CBEC) detected about R10,000 crore of service tax evasion during April-December in FY13 as compared to R6,000 crore in the same period in the previous year. Speedy escalation of the tax department?s infotech backbone is the need of the hour.