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1% drop in I-T return filings: Number of high-income earners going up is the silver lining; need to bring more rich into net

The financial year 2018-19 witnessed a one percent drop in the number of e-income tax return filers. Citing official data, a report by brokerage Kotak Securities says only 66.8 million returns were filed in FY19 as against 67.5 million in the previous fiscal, which is down 1 percent. But the same Kotak Securities study concedes that the number of high income earners filing returns has gone up, which lifts the pall of gloom no sooner than it set in.

The study bemoans the fact that demonetisation was expected to bring more and more persons into the mainstream of the economy. But the study seems to have missed the wood for the trees — in 2017-18, the number of returns filed registered a quantum jump of nearly 26 percent vis-à-vis the previous year 2016-17, which in absolute terms constituted an additional whopping one crore new returns.

Having smoked out a humungous number of hitherto non-filers, demonetisation had indeed achieved its objective of formalising the economy. It is unfair to expect an encore of this feat every year especially when the demonetisation year itself witnessed a flood of hike in income tax return filers.

 1% drop in I-T return filings: Number of high-income earners going up is the silver lining; need to bring more rich into net

Representational image. Reuters.

The increase in the number of returns filed by high-income earners is a cause for cheer. That to a large extent erases the gloom cast by the 1 percent drop in the overall numbers given the fact that income tax, at the end of the day, should increasingly target the rich.

It is the rich who were shaking in their boots when demonetisation was announced and who are still critical of the admittedly cataclysmic exercise. The back-to-back ushering in of Goods and Services Tax (GST) supplemented and complemented the efforts of demonetisation in mainstreaming the economy.

The study, however, is on dot when it says that the government should take the hint from this seemingly lead indicator and take corrective steps post the ongoing general elections. This is trite. Whichever government is voted to power on 23 May, 2019 will be seized of the rising unemployment problem. It is possible that loss of jobs might have resulted in number of the salaried returns registering a small blip.

The next government should use the presumptive taxation scheme intelligently. Under the GST law it is called compounding scheme, whereas under the income tax law it is known as presumptive taxation scheme. Both have the common objective of making life easier for the small businessmen.

Why not then integrate the two? A small trader with a turnover of up to Rs 1 crore gets away with a GST of 1 percent. Period. The criterion of smallness under the income tax law is Rs 2 crore. This means that those with a turnover up to Rs 2 crore are allowed to partake of the presumptive taxation scheme and are deemed to have earned just 6 percent profit on such turnover. This is to the extent it is through banking channels and 8 percent to the extent it is not through banking channels.

Ideally, the standard of smallness under both the laws should be the same and the law should mandate that having availed of the compounding scheme under the GST, one should also avail of the presumptive income tax scheme. This would foil income tax evasion too.

P Chidambaram, as finance minister, had made filing of income tax returns mandatory for those with visible indicators of wealth. There were six such indicators, including ownership of even small cars and phones including cell phones, that resulted in the scheme becoming a farce. The deluge of returns unleashed in its wake ending up in the lavatories of the Income-Tax Department, and were largely unexamined. There is a need for a more focused approach in this regard.

All bungalow owners should be mandated to file income tax returns. Crooks hide their income, but preen with pride while  parading their lavish lifestyle. Similarly, all swanky car owners should also be similarly mandated to file their returns, no matter if they have taxable income or not. Crooks are not coy about owning luxury cars.

(The writer is a senior columnist and tweets @smurlidharan)

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Updated Date: May 06, 2019 14:53:13 IST