In a noticeable data analysis of India’s tax system, the number of taxpayers filing returns has flow by a Costly 105% over the past nine years, reaching a staggering 7.8 crores in the Financial year 2022-23.
This substantial growth can be attributed to a combination of heightened compliance, tax reform in India, and the strategic incorporation of technology by the tax department.
As we go through into the complicated details revealed by the latest data from the Central Board of Direct Taxes (CBDT), a narrative of transformative change and financial give grow - a reflection of progressive taxation shaping the growth story of the Indian economy.
Technological Advancements Driving Taxpayer Inclusion
The digital era has significantly altered the dynamics of income tax in India, with the number of Income Tax Returns (ITRs) surging to 7.8 crores in FY23, a substantial leap from the 3.8 crores recorded in 2013-14.
This amazed 105% increase underscores the impact of technological interventions, making tax compliance more accessible and efficient for a wider part of the population.
The CBDT data also lays bare the vital components of direct taxes within the India`s tax system, with Tax Deducted at Source (TDS) emerging as the main contributor at Rs 8.2 lakh crore in the fiscal year 2022-23.
This is closely followed by Advance Tax at Rs 7.3 lakh crore, highlighting the multifaceted nature of revenue streams within the direct tax ambit. Self-assessment tax also played a notable role, amounting to Rs 1.3 lakh crore for the same fiscal period.
Robust Growth in Direct Tax Receipts
The financial flexibility of India's tax system is evident in the substantial rise of net direct tax receipts, soaring by an amazing 160.5% from Rs 6,38,596 crore in FY14 to Rs 16,63,686 crore in FY22-23.
This growth way paints a positive picture of the nation's revenue health and the effectiveness of tax reform in India and progressive taxation policies.
With the government setting targets, aiming to collect Rs 18.2 lakh crore from direct taxes in FY23, the actual collection of Rs 16.6 lakh crore showcases a commendable 9.6% growth compared to the previous fiscal year.
It reflects a strong fiscal management strategy, balancing revenue goals with economic realities and strengthening the India`s economic growth outlook.
Direct Tax-to-GDP Ratio at a 15-Year High
The direct tax-to-GDP ratio reached a 15-year high at 6.11% in FY22-23, as revealed by CBDT's time-series data.
This marks a significant uptick from 5.6% in FY14, showcasing the increasing contribution of direct taxes to the overall economic output and the success of tax reform in India.
The cost of collection, however, decreased from 0.6% in FY14 to 0.5% in the previous Financial year, demonstrating efficiency gains in tax administration and improved compliance through digital GST reforms measures.
While the tax lightness, reflecting the growth rate of taxes compared to the economy's nominal growth rate, declined to 1.18 in 2022-23 (down from 2.52 in 2021-22), it still outpaced the nominal GDP growth rate.
When a country's tax buoyancy is greater than 1, it means that taxes are growing at a faster rate than the country's national income.
For an individual taxpayer, a higher tax lightness ratio can be beneficial as it allows the government to generate more revenue without increasing tax rates.
This can result in a more efficient and effective Indian tax system that benefits all taxpayers.
Understanding this in the context of the pandemic-induced economic fluctuations is crucial, as GDP growth rates spiked due to a low-base effect in the first quarter of FY22.
“When we compare data or an index, we usually use a reference point such as the same period last year or the previous month. This reference point, known as the base, can affect the outcome of the comparison. When the base is low, the outcome is a mark of a low-base effect.”
Regional Disparities and State Contributions
Maharashtra emerged as a Money powerhouse, contributing 36.4% (Rs 6.05 lakh crore) to the overall direct tax collections in FY22-23.
Delhi followed at 13.3% (Rs 2.22 lakh crore), highlight the significant role played by specific states in the national capital landscape of income tax in India.
The data highlights the tax department's strategic reforms, leveraging technology, GST reforms, and big data to increase compliance and plug fault.
The adoption of these measures aligns with a broader objective of fostering a tax ecosystem that is not only efficient but also conducive to sustained India`s economic growth.
Final Thoughts
ViTWO Finance Expect that India’s tax system has undergone a remarkable transformation over the past 10 year, marked by exponential growth in taxpayer numbers, resilient Financial performance, and a strategic hold of technology.
We created a unique ERP business solution for businesses in India, considering the progressive taxation and tax reform in India framework.
ViTWO AI – vitwo.ai, this innovative solution, has been developed with the guidance of finance industry leaders to modernise the SaaS landscape. It aims to bring all Indian business needs under one unified platform, making it easier for businesses to manage their operations in alignment with evolving GST reforms and income taxes in India regulations.
As the government continues its pursuit of driven targets, the data released by the CBDT offers a glimpse into the nation's evolving economic narrative - one where innovation, compliance, and Financial responsibility intersect to shape a dynamic and progressive taxing ecosystem that supports long-profitable growth of India.
India’s Progressive Tax Growth: A Decade of Compliance & Innovation
