Income tax–rising number & trend

Subject :Economy

Section:Fiscal Policy

Context :

The Income Tax Department has cut the time limit for verification of return to 30 days from 120 days earlier.

Details:

At present, there are two options for verification –

e-Verify returns online, or
sending a physical copy of duly signed ITR-V to Centralized Processing Centre, Income Tax Department, Bangalore.

Income Tax Return (ITR):

Income Tax Return (ITR) is a form which a person is supposed to submit to the Income Tax Department of India.
It contains information about the person’s income and the taxes to be paid on it during the year.
Information filed in ITR should pertain to a particular financial year, i.e. starting on 1st April and ending on 31st March of the next year.
The Income Tax Department has prescribed 7 types of ITR forms – ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 and the applicability of the form will depend on the nature and amount of income and the type of taxpayer.

Income Tax:

Income tax is perhaps the most well known direct tax imposed by the government on annual income generated by businesses and individuals.
Income tax is calculated as per the provisions of Income Tax Act, 1961 and is directly paid to the central government on an annual basis.
Income does not only mean money earned in the form of salary. It also includes income from house property, profits from business, gains from profession (such as bonus), capital gains income, and ‘income from other sources’.
Income tax is levied on the income of individuals, Hindu undivided families (HUF), unregistered firms and other associations of people.
- Hindu Undivided Family (HUF) consists of all persons directly descended from a common ancestor, and also the wives and daughters of the male descendants.
- One can save on taxes by creating a family unit and pooling in assets to form an HUF.
- An HUF is taxed separately from its members, therefore, deductions (such as under Section 80) or exemptions allowed under tax laws can be claimed by it separately.
- An HUF is taxed on the same rate as applicable to an individual income tax assessee.
In India, the nature of income tax is progressive.
The benchmark we use refers to the Top Marginal Tax Rate for individuals, including health and education cess on tax and surcharge.

Trends:

Against the Union Budget estimates of Rs 22.17 lakh crore, the revenue collections as per the pre-actual figures is Rs 27.07 lakh crore, almost Rs 5 lakh crore above the budget estimates.
2021-22 marks the highest tax-GDP ratio of 11.7% (which is much lower than the emerging market economy average of 21 percent and OECD average of 34 percent).
- direct tax to GDP ratio at 6.1% and
- indirect tax to GDP ratio at 5.6%.
The tax buoyancy (which is a measure of growth in tax revenues as compared to GDP growth) is 1.9, with
- 2.8 for direct taxes and
- 1.1 for indirect taxes.
The ratio of direct to indirect taxes recovered from 0.9 in 2020-21 back to 1.1 in 2021-22.
During 2021-22, 70.14 million returns were filed as compared to 60.97 million last year.
- In 2022-2358.3 million income tax returns (ITRs) were filed by July 31. This latest figure is nearly the same as that of the previous financial year (2020-21).
- However, on July 31, 7.24 million ITRs had been filed, highest ever single-day records (the maximum being 4.9 million in 2019).
- India has one taxpayer for every 16 voters.
- Only 1% of India’s population pays income tax.

Other types of direct taxes in India:

Corporate Tax-At present, companies having gross turnover up to Rs.250 crore are liable to pay corporate tax at 25% of the net profit while companies with a gross turnover of more than Rs.250 crore are liable to pay the corporate tax at 30%.
Minimum Alternative Tax (MAT)-MAT is imposed on “zero tax companies”, which typically refer to companies that declare little or no income in order to save tax.
Fringe Benefits Tax (FBT)-The FBT tax is imposed on the fringe benefits like drivers and maids provided/paid for by companies to their employees.
Dividend Distribution Tax (DDT)-An amount that is declared, distributed or paid as dividend to the shareholders by a domestic company is taxed under the Dividend Distribution Tax. It is applicable to domestic companies only. Foreign companies distributing dividends in India do not pay this tax (such dividends are taxable in the hands of the shareholder).
Securities Transaction Tax (STT): The SST is imposed on the income which the companies get through taxable securities transactions. This tax is free of any surcharge.
Capital Gains Tax-The capital gains tax is imposed on the income derived from the sale of investments or assets. On the basis of the holding period, capital tax is categorized under short-term gains and long-term gains.