Crores of new taxpayers turn up; more than demonetisation, GST boosts Income Tax base

If demonetisation’s impact on tax base has been below the high expectations, the goods and services tax (GST) seems to have done far better. As the comprehensive indirect tax has opened new channels of audit trails, crores of new taxpayers have turned up. According to an FE estimate, the number of income tax assessees (all categories including individuals and corporates) in FY18 could turn out to be 13.76 crore or thereabouts, up 66% over the previous year.

And the number of individual I-T assesees would be 12.9 crore, showing roughly the same level of annual increase as in the combined base.

Personal income tax (PIT) collections as a share of the nominal gross domestic product (GDP) had risen from 2.09% in FY16 to 2.43% in FY17, the year in which specified high-value banknotes were demonetised. If that itself was probably unprecedented or at least the highest in recent history (FE has reviewed the figures since FY01), in FY18 (GST was launched in July, 2017, quite early in the year), the ratio increased further to 2.63%.

Despite the relatively larger expansion in tax base in FY18 than FY17, the growth in PIT revenue in FY18 (19%) was lower than that in FY17 (29%).

This was because of the lower growth in GDP during the year and the fact that a large segment of the GST-induced new assessees don’t show taxable incomes. Also, those who deposited large amounts of cash in banks post-demonetisation in FY17 and the income disclosure schemes contributed to the spurt in tax collections in the year.

The GST-enabled sudden expansion of the tax base could potentially yield much higher tax revenue and buoyancy in the coming years.

According to tax department data, till August 31, 5.42 lakh income tax returns (ITRs) were filed, up a spectacular 71% over the same time last year. These included ITRs filed by all classses of taxpayers.

Going by the pattern in recent years, by the end of August, some 45% of the ITRs would have been filed. So the ITRs for this year could finally be 12 crore. The section of TDS (tax deducted at source) assessees who don’t file returns could be another 1.7 crore, given the past trend. (Of course some section of this category may have filed returns this year and contributed to the unprecedented increase in ITRs, but their number could still not upset the estimate). Therefore, the overall IT base for FY18 could be some 13.7 crore. Roughly 94-95% of the overall IT base consists of individual taxpayers, which means their number for FY18 could be about 12.9 crore. That indeed would be a huge jump as the corresponding figure for the previous year was 7.8 crore.