Income tax e-filings in fiscal year 2019 have dropped by more than 6.6 lakhs, according to latest data put out by the Income Tax department. The Central Bureau of Direct Taxes refutes media reports that have spoken of a dip in e-filings.
The e-filing website of the department shows income tax e-filings in FY 2018-19 was 6.68 crore. In the previous fiscal, the number was 6.74 crore individuals. e-filers in FY17 were 5.28 crore.
This data suggests a sudden dip in tax filings. In fact, post demonetisation and even during FY16, tax-filings had shown a significant surge. It had been believed that post-demonetisation e-filings would increase.
The Central Bureau of Direct Taxes however refutes this analysis. The agency said that a total of 6.68 crore income tax returns were e-filed during the financial year 2018-19 which included 6.49 crore returns of current assessment year 2018-19, marking an increase of almost 19 per cent.
Brokerage firm Kotk Securities in its note said that the trend was worrying as well as a surprising one. The agency created a chart of the number of total tax filings in the month of March since FY14. Here is the graph:
"If the filings are indeed plateauing, it will be a worry for the fiscal which has seemingly shifted its focus to compensatory expenditure. The government needs to look at further expanding the tax base (optimally using the data repository from demonetization and GST). Without a significant improvement in the tax base, the medium-term growth path will be at risk," said the brokerage firm.
"Based on the e-filing website of the income tax department, returns filed in FY2019 were at 66.8 mn against 67.5 mn in FY2018—1% lower. This is surprising given that post demonetization it was expected that the tax base would continue to increase. It 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," added the agency.
For the weaker number of filings, the agency also observed that the share of filers from higher-income ranges had increased.
"One of the positives out of the filing data has been the steady increase in the share of filers in the Rs0.5-1 mn, away from the R s0.5 mn bracket. A similar (though quantitatively lower) trend is seen in the Rs1-5 mn brackets too. A focused utilization of the data on deposits during demonetization could yield better compliance, especially in the higher income brackets. This combined with the granular GST filing data will be essential in increasing the filings as well as revenues over the next few years. The task is cut out for the next government looking at improving the tax buoyancy—essential to fund the increasing transfers in expenditure," said Kotak's analysts.
A drop in filings can impact the tax collection numbers. However, the dip in tax filings alone may not be sufficient to suggest a drag on either the economy or growth prospects. It said that while it is hoped that the filings for the assessment year increase (around August when filings are completed), a relatively muted tax filing growth will create further headwinds in an already stressed fiscal space.
In a graph that suggests a slow-down across several key sectors, the analysts point out towards sectors that have shown slower growth than their comparative period.
Here is that graph:
NO DIP IN E-FILINGS SAYS CBDT:
The Central Board of Direct Taxes on Monday evening refuted the report on drop in e-filings.
The agency said that a total of 6.68 crore income tax returns were e-filed during the financial year 2018-19 which included 6.49 crore returns of current assessment year 2018-19, marking an increase of almost 19 per cent.
"This would imply that a substantially larger number of taxpayers filed their returns electronically in FY 2018-19 as compared to FY 2017-18," it said in its statement.
CBDT said that during FY 2017-18, apart from the returns for the assessment year 2017-18, nearly 1.21 crore returns were filed for the assessment year 2016-17.
The balance number of returns were filed for the assessment year 2015-16 and prior assessment years is 0.06 crore. In comparison, during FY 2018-19, only 0.14 crore returns for the assessment year 2017-18 were filed.
Thus, the apparent decrease in the number of returns filed during FY 2018-19 pertaining to earlier years was due to an amendment in Section 139(5) of the Income-tax Act 1961 brought in vide Finance Act 2017 from April 1, 2018, which mandated that a revised return could be furnished only up to the end of the relevant assessment year.
As a result, only 0.14 crore returns pertaining to the assessment year 2017-18 were filed during FY 2018-19 as these were the revised ITRs for the relevant assessment year which could only be filed due to change in the law.
No other return of any earlier assessment year could be filed in view of the amended provisions of law.
The CBDT said that the number of paper returns for the assessment year 2017-18 was only 9.2 lakh (1.5 per cent of total ITRs filed) and the number of paper returns for the assessment year 2018-19 is 4.8 lakh (0.6 per cent of total ITRs filed).
"As per the above details, it is evident that most of the taxpayers have steadily switched to e-filing which is clear from the dwindling numbers of paper returns filed for the assessment year 2018-19 compared to earlier years," it said in a statement.
This story has been last updated to reflect the latest CBDT report.