Income Tax In India In Numbers

Income Tax In India In Numbers

With the deadline for filing income taxes for the financial year 2019-20 coming close on 31st December, let us have a look at some interesting numbers around the same from the previous year published by the Income Tax department.

Crux of the Matter

India despite being the world’s second most populated country, only a minor portion of its population files an income tax return. The following infographic shows the number of returns filed for the year 2018-19.

Now let u take a look at how many tax payers filed returns in each income group.

Personal tax and corporate tax paid in India have been increasing at a drastic rate. Have a look below.

The following infographic shows the state-wise distribution of tax collection for the year 2018-19.

Let us look at two of the important metrics for economists: Direct Tax to GDP Ratio and Cost of Collection of Direct Taxes. Let us take a look at the trend of the same in the 21st century.

  • Article 265 of the Constitution states that “No tax shall be levied or collected except by the authority of law”. Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.
  • Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability.
  • An informal economy is the part of any economy that is neither taxed nor monitored by any form of government. In most cases, unlike the formal economy, activities of the informal economy are not included in a country’s gross domestic product (GDP).

Understanding The Transparent Taxation Platform

Understanding The Transparent Taxation Platform

On 13th August, PM Modi announced the ‘Transparent Taxation Platform – Honouring the Honest’. Currently, there are only ~1.5 crore people out of India’s 130 crores population that is paying income tax. This platform is aimed at bringing inclusivity and transparency. Moreover, the government has also extended the purview of tax recognition, which will not allow people to escape from tax evasion. Let’s demystify the new taxation system.

Crux of the Matter

Transparent Taxation Platform
Under the new reforms, three new things have been announced: faceless assessment, faceless appeal, and taxpayers’ charter. Faceless assessment and faceless appeal will reduce interaction with the tax authorities at all stages, be it a tax assessment or an appeal. Whereas taxpayers’ charter will give clarity to taxpayers on their rights and duties and Income Tax department’s commitment to taxpayers. These changes will help reduce the scope of corruption and overreach of Income Tax officials.

What Is Faceless Appeal?
In India, taxpayers generally assess tax amount to be paid to the government on their own. If the income tax office feels that the tax amount is not calculated correctly then the income tax office would levy an additional tax on the assessed amount. But if the taxpayers feel that the department’s calculation is unfair, they could always appeal to a higher authority. Now due to faceless appeals, there is no need to visit the office or the officer. Moreover, appeals would be allocated to a random officer in the country and the identity of that officer will be kept anonymous.

What Is Faceless Assessment?
Assessment orders are issued by the Income Tax department to make sure the taxpayer has not understated income or inflated expenses. Now onward, such orders will be generated in city A, a review will be done in city B and accessed appeal will be finalized in city C, i.e. territorial jurisdiction would be removed as cities would be selected at random. Moreover, human interference will also be minimized as assessments will be carried out through systems using data analytics and AI.

Faceless assessment will have exceptions if the case involves serious frauds, major tax evasion, international tax issue, Black Money Act & Bemani property.

Expansion Of Scope Of Reporting Transactions
The Government has introduced threshold on certain transactions, meaning specified transactions above a certain limits will be visible in Form 26AS. Form 26AS displays any income on which tax has been deducted and taxes paid on a taxpayer’s behalf (could be by a bank, employer, etc). The entity on the receiving end will report such transactions to the government. This move is aimed at bringing under the radar who evade taxes despite having large transactions.

Lagging Income Tax Cases In India
At the end of 2019, ~4.8 lakh income tax appeals were pending in India. Looking at the number of cases, the government also launched Vivad Se Vishwas Act, 2020. Under it, a resolution process is formed through which tax disputes can be settled quickly. Faceless assessment and appeals are also aimed at expediting resolution processes.

  • Black Money and Imposition of Tax Act, 2015 is an act of the Parliament of India. It aims to curb black money, or undisclosed foreign assets and income and imposes tax and penalty on such income.
  • Gift Tax Act, 1958 was an Act of the Parliament of India which was enacted to impose a tax on the act of giving or receiving gifts under certain circumstances as specified by the Act. From 1 October 1998, Gift Tax got demolished and all the gifts made on or after that date were Tax-free but in 2004, the Gift Tax Act was again renewed partially.
  • A value-added tax (VAT) is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer.

Govt to Release Tax Refunds Immediately

In the critical time of Coronavirus, Government of India has taken a crucial step of releasing Rs.18,000 crores of pending refunds to the respective Income Tax payers.
Complete Coverage: Coronavirus

Crux of the Matter

Tax Refunds as Monetary Measure
The increasing number of Coronavirus cases in India may compel the government to extend the lockdown. In such a case, businesses across the country will be cash-strapped. Currently, almost every sector is also facing a labour shortage.

The government extended its relief by releasing pending refunds worth Rs.18,000 of Income Tax and GST returns. The Ministry of Finance said that this move will benefit 14 lakhs individual taxpayers and 1 lakh businesses. The government will soon release the pending GST refunds too, which will support and enable the small and medium businesses to pay pending wages to laborers. But the Government will only entertain pending refunds amounting up to 5 lakh rupees. Besides financial aid, the Government also gave permission to companies to hold meetings on virtual platforms and to continue operations.

MPs Pay Cut
Looking at the severity of the matter, Ordinance has been passed by the members of Union cabinets, which will allow the government to implement pay-cuts in the allowance and pension of members of parliament by 30% for 1 year. Union Minister Prakash Javadekar declared that MPLADs (Members of Parliament Local Area Development Scheme) fund has been discontinued till 2022. Further, he informed that this fund of Rs.7,900 crore (Rs 5 crore per annum per MP, for 2 years) will go into the welfare of the nation during the coronavirus crisis.

  • A tax refund is a reimbursement to a taxpayer of any excess amount paid to the tax collecting authority. Taxpayers tend to look at a refund as a bonus or a stroke of luck, but it really represents an interest-free loan that a taxpayer makes to the government.
  • In the budget presented on Feb 1st, 2018 by Arun Jaitley, salaries of the MPs witnessed a hike of as much as 25%, which might be brought back down after recent pay cut.

I-T Dept detects massive scam by Jewellers during Demonetisation

Income Tax Department has put several jewellers under scrutiny in cases of alleged large and disproportionate cash deposits during the demonetisation period in November 2016. Some jewellers have been found to have deposited nearly 1,000 times as much cash during the period as compared to the year-ago period.

Crux of the Matter
  • The IT department has scrutinised cases where taxpayers reported a massive increase in unsecured loans during the year or loans fully paid involving huge amounts. These jewellers have also not shown the cash deposited in their return of income for the year 2017-18.
  • These jewellers were red-flagged by the system as their cash deposits amounted to multiple times of their declared income of a few lakhs in previous years.
  • A Gujarat-based jeweller was found to have deposited cash of over Rs 4 crore during demonetisation against just over Rs 40,000 a year ago.
  • One jeweller with a declared annual income of 26 lakh claimed that he received nearly 10 crores in instalments days before demonetisation was announced.
  • The jewellers claimed that the cash deposits were part of sale proceeds or loan/cash received as an advance from unknown customers towards a purchase in October 2016. However, they have failed to furnish complete bills for such purchases.

On 8 November 2016the Government of India announced the demonetization of all Rs 500 and Rs 1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new Rs 500 and Rs 2,000 banknotes in exchange for the demonetised banknotes. According to a 2018 report from the Reserve Bank of India, approximately 99.3% of the demonetised banknotes, or Rs 15.30 lakh crore (15.3 trillion) of the Rs 15.41 lakh crore that had been demonetised, were deposited with the banking system. The banknotes that were not deposited were only worth Rs 10,720 crores, leading analysts to state that the effort had failed to remove black money from the economy. More Info

Ahead of Budget 2020, FM Hints at Relaxed Norms for Income Tax

With Budget 2020 hovering over India’s economy, Finance Minister Nirmala Sitharaman has hinted at some massive reforms. “I have gone through this with a comb. We are working to decriminalize companies and ensure no other Acts, including Income Tax and PMLA, have such provisions,” she said.

Crux of the Matter
  • Ahead of Budget 2020, FM Sitharaman has hinted at decriminalizing Income Tax Act and Corporate Laws. The move, if made, will abolish the criminal provisions pertaining to penalty and jail.
  • She also emphasized on reforming tax dispute settlement mechanisms. FM said, “Nearly 95% cases are closed. About Rs. 35,000 crore has been settled. The total value of cases was over Rs. 2 lakh crore. There is another 5% cases which didn’t opt for the scheme, and they will be fought in courts.”
  • Government is working towards technology-enabled dispute resolution mechanisms, in which there would be no “face-to-face interaction” with the tax authorities.
  • FM acknowledged that privatization had not been carried out optimally and that the government is making efforts towards rapid privatization so as to put India on the path of $5 trillion economy.
  • Sitharaman affirmed that Corporate Social Responsibility (CSR) violations would not be treated as criminal offenses but as civil liability. India Inc. has welcomed this move as the one giving breathing space to corporates.

Penalties in Income Tax Act – There are various penalties & fees which can be levied as per the Income Tax Act, 1961. Some of the important penalties and fees are:
a) Penalty under section 271(1)(c) for either concealment of income or for furnishing inaccurate particulars of income
b) Penalty u/s 270A for under reporting or misreporting of income; and
c) Fee u/s 234F for late filing of ITR. More Info

Penalties for Violating CSR Norms – According to the amendments in the Companies Act, companies violating CSR norms could face a monetary fine from Rs. 50,000 up to Rs. 25 lakh. Violating Company’s officials could also be imprisoned for up to 3 years. More Info