INCOME AND CONSUMPTION ANOMALY

India’s tax to GDP ratio is very low, and the proportion of direct tax to indirect tax is not optimal from the view point of social justice. The data released by the Government26 indicate that India’s direct tax collection is not commensurate with the income and consumption pattern of the people:

Corporate tax: As against 5.6 crore informal sector (unorganised sector) individual enterprises and firms doing small business, of which 1.81 crore filed tax returns. Out of the 13.94 lakh companies registered in India, 5.97 lakh filed tax returns for 2016-17 (Assessment Year) which show the following annual profit before tax pattern:

• 2.76 lakh companies have shown losses or zero income.

• 2.85 lakh companies had less than Rs. 1 crore profit.

• Profit of 28,667 companies was between Rs. 1 crore to Rs. 10 crore, and

• Only 7781 companies have profit of more than Rs. 10 crores.

Individual income tax: As against estimated 4.2 crore persons engaged in organised sector employment, the number of individuals filing return for salary income are only 1.74 crore. In 2015-16 (Assessment Year 2016-17), a total of 3.7 crore individuals filed income tax returns which did show the following annual income pattern:

• 99 lakh show annual income below the exemption limit of Rs. 2.5 lakh;

• 1.95 crore show income between Rs. 2.5 to Rs. 5 lakh;

• 52 lakh show income between Rs. 5 to Rs. 10 lakhs;

• Only 24 lakh people show income above Rs. 10 lakhs;

• 76 lakh people declared income above Rs. 5 lakh (56 lakh being salaried class); and

• Only 1.72 lakh people did show income more than Rs. 50 lakh.

The demonetisation process has given the government new data related to people’s income—about 1.09 crore accounts saw average deposit between Rs. 2 to 80 lakh. Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs. 3.31 crores. This data mining will help the Government in increasing the tax net and tax revenue in future.

The above-given data can be contrasted with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, was 2 crore in the year 2015. From all these figures it can be concluded that India is largely a tax non-compliant society. The predominance of cash in the economy makes it possible for the people to evade their taxes. When too many people evade taxes, the burden of their share falls on those who are honest and compliant.