Tax authorities said they received 25 per cent more income tax returns for the past financially year, as compared with the year before. As many as 28 million Indians have so far, filed personal income tax returns for the fiscal year that ended March 31, compared with just 22 million around the same time in 2016. The surge follows steps by the government to tighten the tax net in an attempt to boost the number of income taxpayers to 100 million and raise India's low tax to gross domestic product ratio.
The Finance Ministry issued a statement announcing the numbers. “Substantial number of new taxpayers have been brought into the net subsequent to demonetisation,” it said. The government credits Prime Minister Modi's November decision to abolish the use of 86 per cent of India's currency. The cash ban was followed up by tax officials investigating individuals and businesses that deposited over Rs 200,000 of the old currency notes in their bank accounts.
India has an overall income tax base of about 57 million people, including several salaried workers whose taxes are withheld by employers, but who do not file tax returns. However, several economists say that middle-class Indians are coming under greater pressure to comply with tax rules, as New Delhi undertakes reforms that will gradually make tax evasion more difficult. The country launched a value added tax on July 1, that will expectedly force several small businesses into the tax net in order to continue doing business with larger, taxpaying firms. Sonal Varma, an economist at Nomura, said, “With Aadhaar, everything is being mapped. Whether you are a business person or an individual, it will be difficult to stay away from the tax net. I do think this is going be a big change for India, and in the next couple of years, India will see its tax to GDP rise.”
On the other hand. Economists noted the current surge in taxpayer numbers is yet to translate into a sharp rise in tax collections. From April until June, the country's direct tax collections rose 14.8 per cent in absolute terms, but analysts say the tax-to-GDP ratio for the quarter appears little changed from the 1.9 per cent collected in the same period in 2016.
