The Finance Minister Shri Arun Jaitley calls India a low compliance nation, to mean that we evade tax laws and do not pay taxes and file our tax returns. And for that he points to the small number of tax returns that are filed in India, as compared to its huge population. While his comment ignores the fact that millions of Indians still live below the poverty line, with no income as such and that the agriculture sector in which a large part of our population is engaged in, is tax exempt, yet in order to ferret out tax evaders and shore up the government’s tax collections, Operation Clean Money was launched by the NDA government, in the early part of its tenure. Income Tax and benami laws were strengthened, and under the severe pain of huge penalty and prosecution, tax recovery was enforced. Then came the brutal demonetisation in November, 2016, as the mother of all measures, to unearth black money and tax evaders. This was a harsh one time measure, which was expected to bring out India’s hoarded black money once and for all, but it failed to live upto its objective and the hype that it generated.
However, the combined result of these stringent measures initiated by the government has been that as against 5/9 crore individual tax returns filed in FY 2016, the figure is expected to surpass 9 crores individual IT returns in FY 2018. The increase in tax returns filed by the hapless salaried class has been much more than those filed by the non salaried class, with their average income returned to tax being Rs.6.8 lacs, as against an average income of Rs.5.2 lacs, returned to tax by the non salaried class. The interesting finding is that while we may think that all chartered accountants, doctors and lawyers should be earning well and filing tax returns, the data shows otherwise. Just about 20% of lawyers file tax returns, a mere one third of CAs file tax returns and less than half the doctors do so. In fact more fashion designers file tax returns, then nursing homes do, as TOI points out.
The government claims that this upsurge in the filing of tax returns, is due to demonetisation and the onset of GST. The government claims that demonetisation is the keydriver of the increase in tax returns filed, is highly debatable, since in response to 23.50 lacs post demonetisation notices by the ITD to cash depositors, a mere 1.5 lacs resulted in filing of IT returns. The other point is that the increase in ITRs filed by the salaried class has been much more than those of the non salaried class. Since the tax of the salaried class is deducted at source, their increase in returns, has nothing to do with demonetisation and the onset of GST.
The fact is that the increase in tax returns and tax compliance has been chiefly due to the large scale data mining being done by the ITD. Every transaction that carries your PAN and adhar number is directly reported to the IT department, whether it be purchase of property, credit card transactions, mutual fund investments, purchase of jewellery etc. is automatically electronically matched with your tax returns and sources of income and tax evasion is spotted and plugged immediately. So while we have far more stringent tax laws and their administration, the fact is it is due to such deep and extensive data mining by the tax department that tax compliance has improved. The credit for the increase in filing of tax returns thus goes much more to technology that the ITD now deploys than to efforts of the government.