The rise in direct tax compliance — which the government claims to be a major impact of demonetisation — observed immediately after currency purge has tapered thereafter, the official data released by the Central Board of Direct Taxes (CBDT) show.
In the year of demonetisation, the number of income-tax (I-T) returns assessed grew 13.5 per cent year-on-year. But in the subsequent (assessment) year 2017-18, only 0.8 per cent more returns were filed, the lowest growth achieved in recent times.
In absolute terms, the number of I-T returns (all categories of taxpayers) filed grew from 43.6 million in assessment year (AY) 2015-16 to 49.5 million in AY 2016-17, growing slowly to 49.9 million in AY 2017-18.
Finance ministry officials, however, said this slow increase is due to exclusion of a considerable number of I-T returns in the AY 2017-18 to account for consistency in data over time.
Despite slow growth in the number of returns, incomes assessed have grown at a healthy pace. The sum of incomes declared in these returns rose from Rs 33.6 trillion in AY 2015-16, to Rs 38.52 trillion in AY 2016-17, to about Rs 43 trillion in AY 2017-18, growing 25 per cent, 15 per cent, and 12 per cent, respectively, in the last three years.
This divergence between growth in the number of returns on the one hand, and incomes on the other, points to a rise in higher income returns, and a drop in lower income returns. This is evident if we look at the data for individual taxpayers, who form more than 95 per cent of all taxpayers.
The returns filed in the two lowest income slabs, Rs 0-250,000 per annum and Rs 250,000 to Rs 500,000 per annum, have reduced by 24 per cent and 2.4 per cent, respectively, in AY 2017-18. About three-fourths of all returns filed are in these two slabs.
In the highest of the slabs, the situation is different. Crorepati individuals, who have filed incomes above Rs 10 million per annum, have grown 36 per cent in the same three-year period. Total crorepatis, including companies, firms, Hindu Undivided Family, association of persons, among others, have increased 29 per cent in number.
The data pertains to returns filed in the respective assessment years. For example, the latest data for AY 2017-18 pertains to incomes in the financial year 2016-17.
The ratio of direct taxes to gross domestic product (GDP) is an important positive indicator for the economy. Due to a rise in I-T compliance, especially in the higher income slabs, direct taxes have touched 6 per of GDP in the financial year 2017-18, the highest since 2007-08, when it was 6.3 per cent.
In terms of average tax paid by each taxpayer, corporate taxpayers have showed a faster growth than individual taxpayers. For the former, average tax paid rose 55 per cent, from Rs 3.2 million in AY 2014-15 to Rs 5 million in AY 2017-18, while for the latter, it rose 26 per cent, from Rs 46,377 to Rs 58,576 in the same period.
The number of salaried taxpayers increased from 17 million in AY 2014-15 to 23.3 million in AY 2017-18. The average salary income for an individual grew 19 per cent, from Rs 576,000 to Rs 684,000 in four years to AY 2017-18.