The government spent a lot of time and effort to get people file their income returns but latest data revealed that it has little to show for the endeavour except added paperwork.

Official data of tax return filers in the current season showed that the number of individuals filing income tax returns claiming no taxable income has gone up.

Those declaring taxable income has, meanwhile, declined, according to data on the returns filed till the end of February for this fiscal year through March.

As of February end, the number of tax filers earning more than  <span class='webrupee'>₹</span>5 lakh has declined as per the latest filings

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As of February end, the number of tax filers earning more than 5 lakh has declined as per the latest filings

Data from the income tax department showed that as of February-end, 49.5 million individuals reported income of up to 5 lakh in FY20, nearly 7% more than the number of people who reported similar income for the year before.

The tax rate for income earned between 2.5 lakh and 5 lakh is 5%, but a rebate is available for those with income up to 5 lakh, which enables them to keep their tax outgo zero.

In contrast, those earning more than 5 lakh have declined as per the latest filings. In the current filing season, 14.1 million people have reported that they have earned incomes more than 5 lakh in FY20.

This is a contraction of more than 6% from those who reported similar income range last year, indicating that while tax compliance in terms of return filing is improving, the tax base is getting shallower.

A worrying trend for tax authorities is that those in the classes of 50 lakh to 1 crore income and above 1 crore income have shrunk by 21% and 28%, respectively. Also, tax filers in the 5 lakh to 10 lakh, 10 lakh to 20 lakh and 20 lakh to 50 lakh categories, too, have shrunk by more than 6%, 2% and 8%, respectively.

Prime Minister Narendra Modi had flagged a key worry for the tax administration—a large number of those filing returns either claim no tax liability or receive their entire tax outgo refunded. It cannot be denied that only 15 million people pay taxes in a country of 1.3 billion people, Modi said last August while asking people to pay taxes.

To be sure, Modi was referring to income tax. Nearly everyone pays indirect taxes. However, indirect taxes are regressive as they tax a higher percentage of a poor man’s income than someone who is wealthy.

A tax official said the department is expanding the scope of tax credit statement—form 26 AS—which shows select transactions by the tax payer reported to the authorities by third parties in order to meet two goals: to improve voluntary compliance and to make tax filing easier for honest tax payers. The official, who spoke on condition of anonymity, explained that as in goods and services tax, in which the transactions reported by the buyer and seller are matched for granting tax credits, the income tax department, too, will rely ever more on the taxpayers’ transactions reported by specified third parties. This would help taxpayers recall all their major financial transactions and make tax filings and assessment more efficient and hassle-free, the official said.

There was no formal response till press time to an email sent to the income tax department seeking comments.

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