Filing of income-tax returns slowed in demonetisation year, show CBDT data

If we look at the data for individual taxpayers, who form more than 95% of all taxpayers

The number of income tax (I-T) returns filed grew 13 per cent for assessment year 2016-17, while it grew by less than 1 per cent in the assessment year (AY) 2017-18, the direct taxes data released by the Central Board of Direct Taxes (CBDT) shows. 

Returns for incomes earned in FY 2015-16 were filed in AY 2016-17. In other words, the assessment for incomes in a particular year is done in the year after. Similarly, returns for incomes earned in 2016-17, the demonetisation year, were filed in AY 2017-18. 

Simply put, the CBDT data shows that there was a jump in the number of returns assessed during and after demonetisation, while the returns pertaining to incomes earned during the demonetisation year grew slower. 

Now, could demonetisation be the reason for this? Experts say it may have had an impact on returns filed after the currency purge, but that it has waned a bit, thereafter. 

“After demonetisation, it is highly possible that chartered accountants of those who were hiding their incomes convinced them to file returns for previous financial years as well, along with returns for the ongoing year, to reduce the chances of scrutiny,” a retired government official, who tracked the economy closely, told Business Standard on condition of anonymity. 

In absolute terms, the number of I-T returns (all categories of taxpayers) filed went up from 43.6 million in AY 2015-16 to 49.5 million in AY 2016-17, growing slowly to 49.9 million in AY 2017-18. 

Finance ministry officials, however, said this slow increase in AY 2017-18 was due to exclusion of a considerable number of the I-T returns in AY 2017-18 to account for consistency in the data over time. “The actual number of I-T returns filed in AY 2017-18 is 52.7 million, but about 2.7 to 2.9 million returns have either not been verified or are outliers,” a senior official from the finance ministry said. Even after accounting for this, I-T returns grew 6 per cent, lesser than the 13 per cent growth achieved in AY 2016-17, suggesting a tapering in returns filed. 

Making amends 

Another set of data points to the rise in returns for previous assessment years. The difference between returns filed for a particular assessment year, and those filed in the period of that assessment year, is rising over the last four years. For example, the returns filed for AY 2017-18 (pertaining to incomes in FY 2016-17) were 49.9 million. But the returns filed in the period April 1, 2017 to March 31, 2018 (period representing FY 2017-18) were 68.5 million, CBDT data shows. The extra ones, a staggering 18.6 million, pertain to returns for incomes in previous, even multiple, assessment years. Returns filed in FY18 period might pertain not just to AY 2017-18, but to AY 2016-17 and AY 2015-16 as well, government officials said. 

The difference was 6.2 million in AY 2016-17, and as low as 1.3 million in AY 2014-15. This suggests that the tendency to file returns for previous years’ incomes has increased in recent times, and especially after demonetisation. 

Divergence in returns and incomes 

Despite slow growth in the number of returns, incomes assessed have grown at a healthy pace. The sum of incomes declared in these returns rose from Rs 33.6 trillion in AY 2015-16, to Rs 38.52 trillion in AY 2016-17, to about Rs 43 trillion in AY 2017-18, growing 25 per cent, 15 per cent, and 12 per cent, respectively, in the last three years. 

This divergence between growth in the number of returns on the one hand, and incomes on the other, points to a rise in higher income returns, and a drop in lower income returns. This is evident if we look at the data for individual taxpayers, who form more than 95 per cent of all taxpayers. 

The returns filed in the two lowest income slabs,  up to Rs 250,000 per annum and Rs 250,000 to Rs 500,000 per annum, have reduced by 24 per cent and 2.4 per cent, respectively, in AY 2017-18, shows a Business Standard analysis of the data. About three-fourths of all returns filed are in these two slabs. 

Experts said this could also mean that the compliance at lower incomes levels is low. 

In the highest of the slabs, the situation is different. Crorepati (those who earn above Rs 10 million per annum) individuals, who have filed incomes above Rs 10 million per annum, have grown 36 per cent over the two-year period. Total crorepatis, including companies, firms, Hindu Undivided families, association of persons, among others, have increased 29 per cent in number.