The government recently released income tax data for assessment year 2018-19 (financial year 2017-18). The data highlights a number of interesting facts which the government needs to work upon to improve tax collections and tax efficiency.
Let’s take a look at the top findings:
1. One-fifth of target market files returns
There were 36 crore main workers in the country as per Census 2011. Of these, 10 crore are engaged in agriculture (cultivators and plantation / livestock / forestry). Agricultural income is exempt from tax. This leaves around 26 crore non-agricultural workers. Of these, 5.52 crore individuals filed returns for AY 2018-19: that works out to roughly 20%.
2. A staggering 95% of individuals filing returns show income up to Rs 2.5 lakhs only
Income up to Rs 2.5 lakh is exempt in India. As many as 5.52 crore individuals filed returns in AY 2018-19. Out of this, 5.22 crore show income up to Rs 2.5 lakh. However, these individuals collectively pay a tax of Rs 89,000 crore of income tax, that is 28% of total tax collected from individuals. This is most likely to be tax deducted at source by banks on interest.
3. Personal Income Tax collections have lagged Corporate Tax collections
Corporate tax and personal tax collections were almost at similar levels in FY2001 (Rs 35,696 crore vs Rs 31,674 crore), gap of only Rs 4,000 crore. In the last 19 years, corporate tax collections have grown faster than personal tax. This has skewed the 52-48 ratio in FY2001 to 65-35 in FY 2010 and corrected to 58-42 in FY2019.
4. Top 2.5% of corporates pay 82%, while top 2.5% individuals pay 61% of total tax
Top 2.5% of companies account for 82% of total corporate tax collections. The corresponding number for individuals is 61%. 4.67 lakh companies out of 8.42 lakh (56%) which file returns report zero income.
This points to unequal distribution of income among individuals and also highlights the poor state of financial health of companies in India. There are around 11 lakh active companies in India. But only 75% of them filed returns.
5. 25% of effective assesses don’t file returns
There are 8.45 crore effective assesses as per data released for AY 2018-19 but out of this only 6.33 crore filed income tax returns. 25% of total assessees do not file tax returns. This number is quite big and includes cases where tax is deducted at source but assesses have not filed returns. These assesses need to be tracked (IT department has their PAN Nos. and addresses) and asked to file returns, hopefully adding to the tax collections.
6. Almost half of returns show zero tax liability
Out of 5.87 crore taxpayers who file income tax returns, 2.37 crore (40%) pay zero taxes. They file income tax returns to stay complaint and use it for processing visa / loans / other purposes.
7. Effective Tax Rate comes to 18%
The effective tax rate (tax payable divided by returned income) for the whole lot of taxpayers is 17.8% in AY 2018-19. While it is 32.3% for corporates (in line with the tax rates), for individuals it is very low at 10.7%.
8. One-fifth of Direct Tax Collections unaccounted for
In AY 2018-19, Rs 10.02 lakh crore of income taxes were collected by the government but the data shows that all IT returns filed aggregated to only Rs 8.07 lakh crore of taxes. So, where did this Rs 2 lakh crore of taxes come from? A portion of this could pertain to TDS on income like interest on bank deposits.
9. Only 15% of PAN card holders file returns
5.87 crore returns were filed for AY 2018-19. As of March 31, 2018, the number of PAN cards issued was 37.9 crore. This means only 15% of PAN card holders file returns. PAN cards once doubled up as an identity card, now Aadhaar has taken over. The filing ratio is very low and needs improvement. In-fact filing returns if you have a PAN card should be made compulsory.
10. Less than a lakh-individuals have taxable income of greater than 1 crore
The number of individuals reporting taxable income of more than Rs. 1 crore has increased by 21% to 93,702 in AY 2018-19 from 77,464 in AY 2017-18.
11. 3 states account for more than 60% of direct tax collections
Top three states -- Maharashtra, Delhi and Karnataka -- account for 62.5% of total direct tax collections in India. This is helped by the fact that most companies in India have their HQ either in the financial capital Mumbai or NCR. Most IT companies have their HQ in IT-hub Bengaluru.
12. Only 4 million Indians claim they receive any income from property
As per the 2011 census, 27 million households are rented, occupied by tenants. However, only 4 million report income from house property. This is just one-sixth of the overall rental market.
The data released by Income Tax department is a welcome move. The analysis shows gaps which need to be looked into and investigated to nab people who are evading tax and increase the tax base as well as collections.
Notes: AY – Assessment Year, FY – Financial Year