24 Jan 2018 15:45 IST

Why individuals should not expect much tax relief

The return statistics show that nearly half of those who file returns do not pay taxes

Finance Minister Arun Jaitley has little room to announce much relief in the taxation for individuals in the last full Budget before the country goes for general elections, an analysis of Income-tax returns statistics shows. At best, he can tinker at the margins to give some relief to specific set of tax-payers, particularly the salaried because the priority would be to protect the government’s tax revenues and keep the tax payers base intact.

Tax evaders

Income-tax returns statistics for assessment year 2015-16, published a fortnight ago, show that nearly half of those who file returns do not pay taxes. Of those who paid taxes, nearly 90 per cent paid less than ₹1.50 lakh. For that matter, the average tax paid by those with a tax liability of less than ₹1.50 lakh for the assessment year 2015-16 was ₹24,000.

It had risen only 14 per cent from ₹21,000 for the assessment year 2012-13.

Those numbers may have improved only marginally in the assessment year 2017-18 after demonetisation and various measures to step up tax compliance even though returns filed has risen. Detailed tax returns data for the previous and current assessment year are not yet available.

Further, in the current financial year, for which returns are to be filed in 2018-19, that average may decline since the Finance Minister had lowered the tax rate to 5 per cent for those with taxable incomes between ₹2.50 lakh and ₹5 lakh.

Jaitley had estimated in his Budget speech that this halving of the rate from 10 per cent will result in a revenue loss of ₹15,500 crore.

The FM had opted to halve the rate rather than increase exemption to ensure that large number of tax payers did not slip out of the tax net.

Returns filed

Income-tax returns statistics for assessment year 2015-16 show that a total of 4.07 crore returns were filed by individuals, including 2.05 crore who paid no taxes. Another 1.85 crore individuals together paid ₹44,615 crore as income-tax, or 24 per cent of the taxes collected. These are individuals declaring taxable annual income of less than ₹10 lakh, net of all deductions.

The bulk of the taxes is collected from those with an annual taxable income of more than ₹24 lakh. People with such income accounted for just a little more than one per cent of the income-tax assessees’ base and contributed 53 per cent of the taxes (₹99,592 crore) for the assessment year 2015-16.

Those with annual taxable incomes between ₹10 lakh and ₹24 lakh made up about four per cent of the tax base and contributed 23 per cent of the taxes (₹43,824 crore).

Government tax data also show that just less half of the individual tax payers are salaried class. Of the 4.07 crore individual taxpayers, 1.89 crore reported salary income and 1.94 crore reported income from business. For the purpose of income- tax, other than the salaried, sole proprietors, professionals and independent consultants are among those allowed to file returns as individuals.

As a result, of the 2.72 crore people with income of ₹10 lakh, only 1.69 crore are salaried.

(The article first appeared in The Hindu BusinessLine.)

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