A sign reading “Pay Your Tax” sits outside the income tax office in Kolkata, India. (Photographer: Brent Lewin/Bloomberg)

Income Tax E-Filings Drop By Over 6.6 Lakh In FY19

In a first in recent times, income tax e-filings in 2018-19 dropped by more than 6.6 lakh, a trend that analysts at Kotak Economic Research said was surprising as tax base was expected to increase post demonetisation.

According to data from Income Tax Department’s website, income tax e-filings in 2018-19 was 6.68 crore, down from 6.74 crore in the previous fiscal. E-filings in 2016-17 stood at 5.28 crore.

“We are surprised with the decline in income tax e-filing in FY2019," Kotak Economic Research said in an April 30 report. “If the filings are indeed plateauing, it will be a worry for the fiscal which has seemingly shifted its focus to compensatory expenditure.”

Tax filings have plateaued in FY2019. This is surprising given that post demonetisation it was expected that the tax base would continue to increase.
Kotak Economic Research

Also read: India May Miss Direct Tax Collection Target For FY19 By Nearly Rs 60,000 Crore

However, registered filers have been on the rise—they grew by 15 percent to 8.45 crore as on March 31, 2019, the e-filing website showed. Registered filers were 2.7 crore at the end of March 2013 which almost doubled to 5.2 crore in March 2016 and to 6.2 crore in March 2017.

Suggesting lower compliance, the ratio of actual filings to registered filers was 79 percent in FY2018-19, down from 91.6 percent in the previous fiscal. The compliance ratio was 85 percent and 83 percent in the preceding two years.

The data showed a steady rise in filers in the Rs 5 lakh to Rs 10 lakh range with 1.05 crore filings in FY2018-19 including 1.02 crore of individual taxpayers.

Kotak Economic Research said the declining e-filings “does beg the question whether compliance was weaker in the latter part of FY2019 given that the number of registered filers has continued to see steady growth”.

“If compliance has been weak, the new government will aim at increasing the filings and collections in FY2020,” it said. “A focused utilization of the data on deposits during demonetisation could yield better compliance, especially in the higher income brackets.”

If compliance has been weak, the new government will aim at increasing the filings and collections in FY2020. A focused utilization of the data on deposits during demonetisation could yield better compliance, especially in the higher income brackets.
Kotak Economic Research

This combined with the granular Goods and Services Tax filing data will be essential in increasing the filings as well as revenues over the next few years, the report said. “The task is cut out for the next government looking at improving the tax buoyancy -- essential to fund the increasing transfers in expenditure.”

From a medium-term perspective, if the government does not expand its capital expenditure (higher transfers and muted tax growth), the growth prospects will be under doubt given estimated fiscal multipliers, it added.