Q.26 “India’s income and consumption pattern show a huge anomaly”. Analyse with suitable illustrations.

Ans. 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 recent data released by the Government (Union Budget 2017–18) indicate that India’s direct tax collection is not commensurate with the income and consumption pattern of the people—

• ‘Corporate tax’ filing pattern is very weak—out of 5.6 crore informal enterprises, only one third filed tax returns. Similarly, out of total registered company (13.94 lakh) around half filed tax returns—of which around 20 per cent did show zero income and only 7781 companies did show profit above Rs. 10 crores.

• In case of ‘individual income tax’, the situation is not better—out of 4.2 crore employees of the organised sector (formal sector), around 45 per cent filed income tax returns. Only 3.4 core Indians filed income tax returns out of which—around half had income below exemption limit; only 24 lakh people had income above Rs. 10 lakhs and only 1.72 lakh had income above Rs. 50 lakhs.

• The above-given data can be contrasted with the fact that in the last five years, more than 1.25 crore cars were sold in the country, and number

of Indian citizens who flew abroad (either for business or tourism), was 2 crore in the year 2015.

From the figures cited above 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. The demonetisation process has given the government new data related to people’s income and it is believed that the data mining will help the Government in increasing the tax net and tax revenue in future.