Paying taxes has always been a challenge for many Indians. In a country with 140 crore citizens, only a meagre 1.6%—approximately 2.2 crore people—contribute to the tax base. This raises concerns about the limited number of individuals actively participating in funding the state and country.
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Who Bears the Responsibility?
It’s not a universal rule that every citizen must pay taxes. About 72.2% of Indians earn less than 5 lakh per year, exempting them from taxation. However, certain categories, including farmers, educational and charitable societies, and professionals like doctors and lawyers, often earn more than 5 lakh but are not obligated to pay taxes. This has led to a trend of capable individuals not fully contributing to income tax.
The Importance of Taxation: A Necessary Contribution
Despite the challenges, taxation is a vital contribution individuals make to their country. The funds collected through taxes are utilised by the government for public interest initiatives, infrastructure development, and policy implementations. Every capable individual should consider this contribution as a responsibility to support the country’s growth.
Government Transparency Reveals Taxation Trends
The Indian government has recently showcased transparency by releasing data on direct tax for the last 15 years. The numbers reveal a significant increase in the number of individual taxpayers and net direct tax collections.
– A 295% increase in ITRs filed by individuals with a gross total income of Rs. 5 lakh to Rs. 10 lakh from AY 2013-14 to AY 2021-22.
– A 291% increase in ITRs filed by individuals with a gross total income of Rs. 10 lakh to Rs. 25 lakh during the same period.
– Net direct tax collections rose from Rs. 6.38 lakh crore in FY 2013-14 to Rs. 16.61 lakh crore in FY 2022-23.
Despite these positive trends, the overall number of direct taxpayers remains surprisingly low. As of July 31, only 5.83 crore returns were filed, slightly over 4% of India’s population. The Finance Minister disclosed that India has just a little over 8 crore direct taxpayers, encompassing both individuals and corporations.
Demonetisation’s Impact on Taxation
Demonetisation, introduced to curb black money and promote a digital economy, had unintended consequences on taxation. The abrupt withdrawal of high-denomination currency notes led to a temporary economic slowdown, affecting tax collections. Businesses faced disruptions, hindering their ability to meet tax obligations. The informal sector, relying heavily on cash transactions, suffered, resulting in a decline in tax revenues.
While demonetisation aimed to widen the tax base by formalising the economy, the expected surge in tax collections did not materialise immediately. Challenges in transitioning to digital transactions hindered the government’s efforts to trace and tax previously undisclosed income. The long-term impact on tax compliance is still unfolding, but the initial years post-demonetisation saw a mismatch between intended objectives and immediate consequences, adversely affecting tax-related aspects of the economy.
In conclusion, India grapples with a low percentage of taxpayers, presenting challenges and opportunities for the government to encourage wider participation in supporting the country’s development through responsible taxation.