DEMONETIZATION: Income Tax e-filings up 20%, collection up 14%

The number of income tax e-filings increased by 19.5% this year compared to last year as demonetization forced many people declare their hitherto undeclared incomes.

A total of 3.89 cr e-filings were recorded in the current financial year as of Nov 7, compared to 3.25 cr in the same period of the previous year, the finance ministry said.

The total amount of direct taxes collected also increased to 4.8 lakh cr so far from 4.2 cr in the previous year, corresponding to a 14.3% increase, the ministry added.

The improvements can be credited to the decision by the government to withdraw, or demonetize, 500- and 1000-rupee notes in the second half of last financial year.

To get the money back, people had to deposit their old notes in banks.

The move forced many people — who had never filed a tax return in their lives — to declare their income and file their first ever income tax return this year.

The move is also credited with increase in direct tax collection.

Despite this, the improvements in tax base and collection are less than many expected.

Some had expected a dramatic improvement in collections as it is estimated that income tax compliance in India is not even 50% in terms of amount of tax collected.

Many people who had undeclared cash laying around are reported to have used proxies and mules to deposit their cash and exchange it for new notes.

The Narendra Modi-led government has come under attack for not anticipating the shrewdness of Indian non-taxpayers and for implementing the demonetization drive that caused much hardship to genuine taxpayers.

However, surprising the critics, many people belonging to the lower income category lent their support to Modi’s effort — ensuring a win for the BJP in subsequent elections — even though they were among the hardest hit.