Income tax compliance: Gains and gaps

Despite mandatory compliance provisions, the share of nil returns remains high for both individuals and companies

- R KAVITA RAO

One of the primary concerns of the income-tax regime isto expand the coverage — have alargernumberoftax-payers within the scope of the regime.

A broad-based tax regime is expected to be more stable and serve as a buoyant source of revenue. Income tax statistics provide information on the number of taxpayers as a part ofthe time series data dissemination. This isasuperset of PAN holders who either paid tax or filed areturnina givenassessment year. Income-tax return statistics, on the other hand, provide information on the total number of individuals or PAN holders filing returns during a given financial year as well as their distribution according to various parameters, includingthe amount of tax paid.

From these different data series, it is possible to define three categories of interactions between the income-tax system and taxpayers: Those who pay taxes and file return, those who pay taxes but donot file returns, and those who file nil returns, implyingnotaxispayable.Inthispiece,we explorethetrendsin thesethreecategories for three classes of taxpayers: Individuals, firms, and companies.