Income tax returns shrink in FY19 as demonetisation effect wanes

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Updated: May 3, 2019 7:03:21 AM

By FY18, the share of e-returns filers among all categories of taxpayers to the total taxpayer base (which include non-filers as well) had crossed 90% from around 60% in FY15.

E-return filed in a year pertains to the income earned and tax liability computed/tax paid by the assessee for the previous year.

After clocking steep growth rates over the last few years (an average of 25% in the three years to FY18), the number of taxpayers filing income-tax e-returns saw a marginal contraction in FY19. In FY19, only 6.68 crore returns were filed online, 1% lower than 6.74 crore filed in FY18.

Though e-returns for a year continue to trickle in during the subsequent few years and so the FY19 e-filing figure could slightly look up over time, it is clear from the latest data released by the Central Board of Direct Taxes (CBDT) that demonetisaton and GST primarily brought about an increase in compliance (in terms of returns filing) among the existing pool of taxpayers, rather than an expansion of the tax net.

By FY18, the share of e-returns filers among all categories of taxpayers to the total taxpayer base (which include non-filers as well) had crossed 90% from around 60% in FY15.

This reduced the scope for a further rise in number of returns in FY19, unless the tax base expanded considerably in the year (it hasn’t).

Against the revised estimate, direct tax collection in FY19 fell short by `50,000 crore or 4.2%. In the current financial year, the budget estimate for direct tax mop-up is `13.8 lakh crore, a 15% jump from RE for FY19.

E-return filed in a year pertains to the income earned and tax liability computed/tax paid by the assessee for the previous year.

According to analysts, another reason for flat growth in returns-filing in FY19 could be the increase in threshold for taxable income implemented over the last few years. In the last two years, the government reintroduced standard deduction and also allowed a higher rebate for those with total annual income up to `5 lakh.

“It is possible that after these measures some taxpayers went out of the tax net which exempted them from filing tax returns. However, this number was not adequately compensated by those coming into the tax net for the first time, which is reflected in lower e-returns filing for FY19,” Sanjay Kumar, senior director at Deloitte India said.

The government has often highlighted the recent years’ sharp increase in the number of e-returns as a sign of rapid expansion of the tax base and attributed the trend to demonetisation and greater efficiency of the tax administration.
The average tax paid by each entity/person in the effective taxpayer base has been between `1-1.1 lakh between FY 12-13 and FY 16-17 while the same among returns filed has seen a drastic fall to `1.22 lakh from `1.88 lakh.
The growth trajectory in direct tax collection resembles the growth in effective taxpayer base, rather than the number of returns.

MeitY mulls using mobile numbers to verify accounts

The government wants to explore whether a similar exercise can be launched for all accounts on social media, considering it will be a humongous exercise as social media users in India are in range of 350 million and counting, explained another official.

This issue was also discussed during MeitY officials meeting with the parliamentary standing committee on IT earlier this year. The panel has already met officials from Facebook, WhatsApp and Twitter over authenticity of information on these platforms during elections.

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