Gujarat emerged as the most tax-compliant state in assessment year 2018-19, based on the proportion of ‘returns filed to PAN holders’.

The state saw 22.3 per cent income tax (I-T) returns filers (of the total PAN holders), followed by Delhi with a filing rate of 20.5 per cent, Punjab with 16.74 per cent, and Telangana with 16.68 per cent.

Among large states, the lowest rate of filing was seen in Bihar at 5 per cent, followed by UP at 8.11 per cent — much below the national average of 12 per cent.

However, caution should be exercised while interpeting data. An income tax official explained that it is not mandatory for all PAN holders to file returns and many persons above 18 years obtain the card without having any income. Though companies and businesses are supposed to file returns even in case of ‘nil’ income, it is not mandatory for individuals.

In the case of individuals, filing of returns is mandatory for those with total income above Rs 2.5 lakh. For senior citizens, the threshold is Rs 3 lakh.

Bihar also had the lowest proportion of cases picked up for scrutiny, at 0.08 per cent of all returns filed. This was a sharp drop from the 0.42 per cent in AY18. Jharkhand was next, with only 0.09 per cent picked up for scrutiny in AY19, down from 0.3 per cent in AY18.

Delhi saw the highest proportion of cases picked up for scrutiny, with 0.52 per cent of filers facing a probe in AY19, down from 0.81 per cent in AY18. It was followed by Telangana at 0.5 per cent.

Cases picked up for scrutiny halved to 0.25 per cent of the overall returns filed, in AY19, from 0.55 per cent in AY18. The number of scrutiny cases was 0.71 per cent in AY16 and 0.4 per cent in AY17.

“The I-T department is changing from just enforcement to facilitating better taxpayer services. In continuation of the same, the number of cases selected for scrutiny has reduced drastically over the years,” the Ministry of Finance said in a tweet.

An assessment year is the year in which one files their returns, for the preceding financial year. Income earned during the financial year is evaluated by the department in the AY.

The ministry did not disclose the absolute number of cases picked up for scrutiny during these years. The number of returns filed during AY19 — the year following demonetisation — rose sharply compared to AY18.

Jharkhand saw the number of filers rise 23 per cent in AY18 from 3.5 per cent in FY17. Karnataka saw the number of filers grow 19.5 per cent in AY18, versus a 1.9 per cent growth in AY17. Haryana reported a rise of 16.7 per cent in AY18 against 3.5 per cent the previous year.

"The tax payers have not only become cautious over a period of time, but with increased checks and balances in place, the scope of evading the law has reduced considerably. The changing point was demonetisation when the economy moved from cash based economy to digitized economy where all the transactions started getting recorded," said Sumit Batra, partner at India Law Alliance.

In Odisha, the figure fell to 0.12 per cent from 0.37 per cent, while for Punjab, it dropped to 0.14 per cent from 0.40 per cent. In West Bengal, 0.25 per cent cases were picked up for scrutiny, compared to 0.59 per cent last year.

Of the 58,319 cases picked up for faceless assessment, the government has disposed of 8,700 and aims to finish all by October. The faceless assessment scheme, rolled out in October 2019, eliminates the physical interface between an assessing officer and an assessee.