Demonetization: Impact on Direct Tax data

A lot has been said in the media by many economists and bureaucrats in last few months regarding the adverse impact of Demonetization and Goods & Services Tax on the economy. Many have gone on record to say that the Economy has been destroyed. However IMF defers from it in spite of revising the growth from 7.3% to 6.7% and calling it a blip. Even the global financial service, Morgan Stanley, firm has stayed positive on the economy. These contradicting views still keeps the doubt in mind if the exercise was really good?

From the point of view of direct taxation, the story seems a bit different.

If history of direct taxation is analysed it can be seen that something was not right. The average rate of growth in direct tax collection for past seventeen year was 17%. However, if the same is seen for past 8 years, it was only 10.65% or for past 5 years, it was only 8.74% or for the matter of past 3 years, it was further down to 6.89%.  After demonetization, however, it has gone up drastically to 15.3% for one year, considering the provisional figures as presented in the Union budget. This clearly explains that income tax was not being declared by many, in spite of rising working class and wages in last 17 years.

- Advertisement - - Article resumes -

Further, if one analyses Direct tax as a component of Total Tax revenue collected as on date, it also shows an irregular trend.

It was on constant rise till 2010, but after that it has been falling in an irregular manner. However, after the exercise of demonetization, it seems to have shed the trend of fall and has started to rise which again points back to the corrupt practices which existed earlier.

If the number of individual taxpayers are seen, then one can easily see that the number is on constant rise. For instance, the number of individual tax payers has gone up from 2.22 Cr to 2.79 Cr, a rise of 25%, as on 7th August 2017 as per the official press release of Central Board of Direct Tax. The data maintained by the IT Department shows that during 1st April, 2017 to 5th August, 2017, 2.79 crore e-returns of Individual taxpayers were received as against 2.23 crore e-returns received during 1st April, 2016 to 5th August, 2016. Thus, the additional ITRs received in 2017 works out to be 56 lakh. During the same period of 2015, 2.00 crore e-returns were received, meaning thereby, that in 2016, only 22 lakh (rounded off)) additional e-returns were received by the due date of filing.

The total tax Direct Tax collected in the financial year 2016-17 was INR 8.46 Lakh Cr., in which the rise in the last quarter from its previous one stood at 29.6%, which may be attributed to the exercise of demonetization. Even the provisional figures for the current year’s budget stands at INR 9.80 Lakh Cr. If the till date collected figures for the Quarter ending in September 2017 are seen, it stands at INR 3.86 Cr, 18% more than the collection for the same quarter in the previous financial year.

If we extrapolate the same as per average growth rate from April 2016 to Dec 2016 (as beyond that, demonetization impacted the collections) on accounting rising number of individual taxpayers and IT Department’s ‘Operation Clean Money’ drive , the value goes past INR 9.80 Lakh Cr comfortably.

If we assume the collection as projected, i.e. INR 10.48 Lakh Cr, it is around 70,000 Cr. more than the projected figures by government in the union Budget, which means we can actually expect the government to abolish the Income Tax for people earning up to INR 9,00,000 per year (AY 2014-15 data considered as latest authentic data is unavailable) which may come as a big relief to the people and may also help governing political party in future elections. Also this will increase spending and will give industries a much needed push. Although this is just an interpolation of an assumption, but the possibility cannot be ruled out as well as the exact data regarding the number of tax payers were not clear during the preparation of union budget.

On a holistic view, the exercise does seem to have created some short term jolts to the economy but the long term benefits seem to be much favorable, to the government in terms of revenue which can be spent on various social schemes and if the trend continues, to the middle class population as well if government relaxes the limit of the taxable income by certain amount.

Sources of Data :
Individual Taxpayers Data: Multiple Press Releases 
Assessment Year 2014-15 Data
IMF Report

Analyst, Engineer, NITian, MovieHolic & Reviewer, Political Observer, Foodie

Share and Support:
Support OpIndia by paying for content

Most read articles recently

Congress friendly journalist wishes death upon BJP Delhi spokesperson Tajinder Bagga

During the run-up to Gujarat assembly elections last year, Trivedi was caught spreading morphed images with Amit Shah's fake quotes on Patidars

BJP has lost the digital and social media edge, but it is not too late to recover

Talented supporters are BJP's key asset. If things start moving now BJP will be able to recover the edge lost by 'IT cell'. The time to act is now.
Modi government vindicated, SC says Rafale Deal clean

SC verdict on Rafale deal: Read scathing comments made by Court while dismissing petitions for inquiry

Supreme Court dismissed petitions for an enquiry into Rafale deal pricing, offset partner selection and procurement procedure. Read scathing observations

Activist opposing Akshaya Patra’s mid-day meal contract thinks ‘Brahmins obstruct India’s development’

The Akshaya Patra has come under criticism recently for not including onion and garlic in its mid-day meals for school children.

For all his angst against Adani, Rahul Gandhi chose Kamal Nath who rallied behind Adani for power plant in Chhindwara

Kamal Nath is believed to be close to Gautam Adani, whom Rahul Gandhi has frequently accused of being a 'crony capitalist'

Pro-Congress troll resumes fake news website, makes outlandish claims on Rafale targeting Modi

Abhishek Mishra has been associated with the website which spreads fake news and Islamist propaganda

‘Will not develop areas which did not vote for me’: Rajasthan Congress MLA shortly after winning

Rajender Singh Bidhuri fought and won a close battle against BJP MLA Suresh Dhakad with a margin of 1661 votes.

Mumbai Police teaches a lesson in humility to ‘special’ Sonam Kapoor

Actor Dulquer Salman clarified that he and Sonam were sitting inside a car that was rigged to a truck and hence were not breaking traffic rules.

Double whammy for Congress in court: After Rafale verdict, Rakesh Asthana’s appointment as CBI special director upheld by SC

The Supreme Court's verdict is being seen as the second major embarrassment for both the Congress party and Prashant Bhushan, as the Supreme Court had earlier rejected a plea on the issue of a probe concerning the Rafale deal.

Arun Jaitley rejects JPC demand on Rafale, says “deaf will never receive an answer, they can’t hear it”

Arun Jaitley called for an apology from Rahul Gandhi for his lies on Rafale deal

Latest articles

Connect with us

125,671FansLike
97,957FollowersFollow
6,119SubscribersSubscribe

Don't miss these