India has witnessed a remarkable surge in Income Tax Return (ITR) filings during FY23, setting a record with an impressive 74 million filings. Surprisingly, a significant portion of these filings, precisely 70%, were classified as zero-tax ITRs, indicating that taxpayers claimed no tax liability. This data, released by the finance ministry in Parliament, sheds light on the increasing trend of zero-tax ITRs, which have seen a staggering 77% rise over the last four years, reaching a total of 51.2 million in FY23.
Reasons Behind the Growth of Zero-Tax ITRs:
While the overall number of ITR filings has increased by 14% over the past four years, the substantial growth in zero-tax ITRs warrants closer examination. Maharashtra recorded the highest number of zero-tax ITRs, with 74.45 lakh taxpayers claiming no tax liability in FY23. Gujarat and Uttar Pradesh followed closely, with 59.92 lakh and 52.73 lakh zero-tax returns, respectively. It is important to note that these zero-tax returns are not necessarily indicative of tax evasion; instead, they often arise from individuals seeking tax refunds on deductions made during various transactions. Moreover, many taxpayers file ITRs to meet compliance requirements, even if they have no tax liability.
Government Initiatives to Boost Taxpayer Base:
To expand the taxpayer base and streamline the tax filing process, the Indian government has implemented several initiatives, including:
- Expansion of TDS/TCS: The scope of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) has been broadened to encompass a wider range of transactions, ensuring greater tax compliance.
- Simplification of Personal I-T: The income tax filing process for individuals has been simplified, encouraging more people to file returns accurately.
- Prefiling of ITRs: The introduction of prefilled ITRs assists taxpayers by pre-populating their income details, reducing the burden of manual data entry.
- Updated Form 26AS: The government introduced a revamped Form 26AS, providing comprehensive information on taxpayers’ financial transactions, and enabling better compliance monitoring.
- Non-Filers Monitoring System: A system is in place to closely monitor non-filers, encouraging them to file ITRs and comply with tax regulations.
- Awareness Campaigns: The tax department undertakes publicity campaigns, sending reminders via emails and SMS to taxpayers, to promote the timely filing of ITRs and tax payments.
The surge in zero-tax ITRs can be attributed to a combination of factors, including taxpayers seeking tax refunds and fulfilling compliance requirements. The Indian government’s efforts to simplify tax filing and raise awareness have been instrumental in expanding the taxpayer base. As the country continues to grow economically, a broader taxpayer base will play a pivotal role in sustaining and strengthening India’s fiscal landscape.