What are factors that contributed to sharp rise in number of I-T returns?

The number of I-T return filings surged 71 per cent till August 31, but direct tax collections grew by a meagre 6.6 per cent during April-July, 2018-19. Indivjal Dhasmana explains the numbers.

What are the factors that contributed to the sharp rise in the number of income tax returns (ITRs) filed this year?

While the government attributes it to the expansion in the tax base due to demonetisation (of November, 2016) and disclosures through the goods and services tax (GST), it is also the provision of late fee that led to the surge in ITRs filed. In the Budget for 2017-18, a new section, 234F, under the Income Tax Act was inserted to ensure timely filing of returns of income. According to this section, if a person is required to file ITRs, but does not file it within the prescribed time limit, he has to deposit a certain amount as late fee while filing his ITR form. The quantum of fee depends on the total income and the time of filing the return. So if you have income of up to Rs 500,000, and have missed the deadline, then you have to pay Rs 1,000 as late fee after the last date. (The last date of filing returns for the last fiscal year was extended by a month to August 31, and to September 15 for those in flood-ravaged Kerala.) If you have income of more than Rs 500,000, then you will have to pay Rs 5,000 if you file by December 31, and Rs 10,000 if you file after that.

Who should file ITRs?

Everyone whose gross income (before allowing any deductions under section 80C to 80U) exceeds the basic exemption limit of Rs 2,50,000 for individuals below 60 years; Rs 3,00,000 for individuals of 60 years and above but less than 80 years old; Rs 5,00,000 (for individuals of 80 years and above). You also need to file a return if you hold any asset including financial interest in any entity located outside India or have signing authority in any account located outside India as a beneficial owner or otherwise. If you are a beneficiary of any asset located outside India, you have to file ITR.

Why did the surge in returns not lead to a commensurate increase in tax collections for April-July 2018-19?

The returns whose numbers have been disclosed recently belong to the fiscal year 2017-18. That year, the direct taxes did grow 21.1 per cent in the first four months. However, the growth declined to 6.6 per cent in April-July, 2018-19. This could be because of higher refunds paid — Rs 750 billion were refunded in April-June, FY19, which was almost half of what was refunded in the entire FY18. Also, the surge in returns is no guarantee that collections will also increase. Over 10 million people who filed returns did not pay any tax as they were below the threshold in the assessment year 2015-16. That number would have increased now. What could have also happened is that some who paid taxes, but did not file returns, are now filing returns due to the penalties imposed. 
 

A hefty increase of 681.69 per cent was registered in the filing of ITR4 by those availing of the benefit of presumptive tax. However, these are professionals and entities with annual income of up to Rs 5 million and Rs 20 million respectively. The taxable income is taken as 50 per cent of the gross annual income for professionals and 8 per cent of sales for companies, so not much revenue would have come from these.

Has the provision of e-filing of returns boosted the number of returns filed? 

Everyone has to file an e-return if he is not more than 80 years of age. However, the Gujarat high court allowed a man to file his ITR manually instead of doing it online — which requires linkage to Aadhaar card — and directed the I-T department to accept the same. According to the rules, the ITR has to be uploaded on the I-T department’s web portal only after linking it to the 12-digit unique identity number (Aadhaar) of the assessee. Also, the Madras High Court has allowed nine petitioners to file their ITRs manually without quoting their Aadhaar numbers. In fact, the finance ministry gave the number of ITRs filed electronically only — and it showed a surge of 70.86 per cent this year. 

Have the changes introduced in ITR forms impacted the number of returns filed?

That could have led to some increase. For instance, there was no requirement of indirect tax registration number for presumptive tax in ITR4 earlier, but for 2018-19, GSTN has to be given. Also, ITR3, 5 and 6 introduced new columns to report Central GST, State GST, Integrated GST, UT GST paid and refunds received. Earlier, in ITR1, only taxable income from salary and rent from house property had to be disclosed. Now a more detailed calculation has to be provided.  

With inputs from Taxmann and Deloitte India