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सेमिनार: अंग्रेज़ी सीखने का अवसर (23 सितंबर: दोपहर 3 बजे)
Q. Income Tax: According to recently realised income tax data the income tax base in India is too narrow and it is cause to worry. Comment
May 03, 2016 Related to : GS Paper 3

Ans :

In news-

Recently first time in the India history the Central Board of Direct Taxes has disclosed aggregate data on Indian income tax payers.


Since long time various academicians and researchers were demanding for release of data, because these data helps in research and formulation of better tax policy. In this background government has released income-tax data since the fiscal year 2000-2001, giving insight into income trends in the country and earnings by different categories of people of 2012-13.

Key information about earnings by different categories of people-

According to released data, only 2.9 crore Indians filed personal income tax returns for the assessment year 2012-13, which is less than the 4% of the 760 million adults enumerated in the 2011 Census. And less than 50% of that has paid income tax. 

Only 18,358 individual tax payers declared incomes of over Rs 1 crore for assessment year 2012-13. About 55% of the 31 million individuals filing income-tax returns reported no income at all and only about two million of them showed annual income of between Rs 5.5 lakh and Rs 9.5 lakh.


According to above information, the income-tax base in India continues to be too narrow. This is mainly due to large scale evasion and failure of system in bringing enough well-off Indians into the direct tax net. Contribution of direct taxes to the total tax revenue is decreasing and indirect tax is increasing. In 2015-16, direct taxes contributed only 51% of the tax revenue, lower than in recent years and the lowest since 2007-08.


For a healthy economic system contribution of direct taxes should be much more than that of indirect taxes because it taxes based on the means of income. An increasing share of indirect taxes in total revenue collection is cause to worry because it affects most to the poor sections. Poor people generally spend a greater fraction of their income on essentials and contribute higher individual tax rate than others.


Efforts must be undertaken to widen the income tax base and recent efforts to phase out exemptions must be speeded up. The tax department has to work out more up-to-date methods of identifying potential taxpayers. Income tax return filing process must be made simplified as possible. In the light of above data government's approach to tax amnesty must be re-examined.


Continued fall in contribution and narrower direct tax base is not good sign for any economy. Hence there is an urgent need to bring meaningful reforms in the taxation system to widen the direct tax base like taxing large farm incomes, rationalising tax benefits enjoyed by the well-off section etc. Government must take all round actions to prevent tax evasions.

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