The latest Ministry of Finance data reveals a notable surge in income tax return filers. However, a deeper analysis of the figures indicates a significant disparity in the number of individuals who have actually paid their income tax in FY23 compared to the estimated numbers from FY20.
The latest Ministry of Finance data reveals a notable surge in income tax return filers. However, a deeper analysis of the figures indicates a significant disparity in the number of individuals who have actually paid their income tax in FY23 compared to the estimated numbers from FY20.
While individuals earning over Rs 1 crore witnessed a substantial 48.4 percent year-on-year increase, these high earners constituted only 0.2 percent of the total income tax returns (ITRs) filed during FY 2022–23.
On the contrary, individuals earning up to Rs 5 lakh or those with no tax liability, accounting for nearly 60 percent of the share, experienced a modest growth of just 4.9 percent.
The latest figures on e-filing of income tax returns show that for the fiscal year 2022–23, a total of 1,69,890 individuals declared an income exceeding Rs 1 crore in their submitted ITRs. In contrast, a substantial count of 4.65 crore individuals declared either nil tax or an income of less than Rs 5 lakh.
Understanding the surge in tax filings but the decrease in tax returns
The data revealed by Finance Minister Nirmala Sitharaman in the Lok Sabha shows that income tax compliance, gauged by the number of individuals filing tax returns, grew between 2019–20 and 2022–23. However, a more rapid increase has been observed in the number of individuals with no tax liability.
Another potential factor contributing to the surge in tax returns: the influx of first-time taxpayers, many of whom may not fall within the taxable bracket. Additionally, the demand for copies of tax returns for diverse purposes, such as loan applications, visa processing, and other necessities that require I-T filings, further bolsters the number of returns filed, even in cases of nil tax liability.
Experts speculate that this trend could potentially amplify in the upcoming year due to the new tax regime. Under this regime, income of nearly Rs 7 lakh would carry zero tax liability, effectively making it the default taxation structure.
Punjab leads the way in ITR submissions
An analysis of state-wise ITRs by the Hindu Businessline show that Chandigarh, Delhi, and Goa had the highest proportions of population filing ITRs IN 2022-23 — 23 percent, 17 percent, and 15 percent, respectively. Among the major states, Punjab emerged as a leader in submitting ITRs due to its robust agricultural, manufacturing, trading, and emerging service sectors.
However, while agricultural income typically enjoys exemption from income tax, individuals surpassing certain thresholds are mandated to pay income tax. Moreover, the state boasts a substantial number of government employees whose salaries might be subject to tax deduction at the source, thereby augmenting the pool of eligible tax return filers.
Source: https://www.wionews.com/business-economy/60-per-cent-decline-in-people-who-actually-paid-income-tax-since-2020-626247
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