Income tax scrutiny down in AY18; Delhi faced the highest, Bihar the least

Gujarat the most tax-compliant state in terms of proportion of return filers to PAN holders

Gujarat has emerged as the most tax-compliant state in the country in terms of proportion of return filers to PAN holders in the assessment year 2018-19. The state had 22.3 per cent income tax return filers out of the total PAN card holders in AY 2018-19, followed by Delhi, with a filing rate of 20.5 per cent, Punjab (16.74 per cent) and Telangana (16.68 per cent).

Among large states, the lowest rate of return filing with respect to PAN card holders was seen in case of Bihar at 5 per cent, followed by Uttar Pradesh (8.11 per cent), both much below the national average of 12 per cent.

The income tax filing data may not be a correct indicator of tax compliance as not all PAN holders are liable to file tax returns. While companies and businesses must file a return even if income is ‘nil’, that isn't the case with individuals. For individuals, filing tax returns is mandatory for those whose total income exceeds Rs 2,50,000. The limit is Rs 3 lakh for senior citizens.

Incidentally, Bihar also had the least proportion of cases picked up for scrutiny, at 0.08 per cent of the tax returns filed in 2018-19. The rate of scrutiny declined sharply from 0.42 per cent in 2017-18. Jharkhand followed, with only 0.09 per cent filers picked for scrutiny in 2018-19, down from 0.3 per cent in the previous year

The number of cases picked up for scrutiny by the income tax department halved to 0.25 per cent of the total income tax returns filed in assessment year 2018-19, from 0.55 per cent in the previous year. The percentage of income tax scrutiny cases was 0.71 per cent in AY 2015-16, 0.40 per cent in AY 2016-17.

Delhi had the highest proportion of cases picked for scrutiny with 0.52 per cent of tax return filers facing probes in AY 2018-19, down from 0.81 per cent the previous year. It was followed by Telangana (0.5 per cent).

"The income tax department is changing, from just enforcement to facilitating better taxpayer services. In continuation of the same, the number of cases selected for scrutiny has reduced drastically over the years," the ministry of finance said in a tweet on Tuesday.

Assessment year is the year in which one files income tax returns for the year prior to it, which is the financial Year. The income earned during the financial year is evaluated by the income tax department in the assessment year.

The ministry did not give the absolute number of cases picked up for scrutiny during these years.

The number of returns filed during AY 2018-19, a year after demonetisation, rose sharply over AY 2017-18 across states. Jharkhand saw the number of return filers increase by 23 per cent in AY 2018 from 3.5 per cent the previous year. Karnataka's return filers grew by 19.5 per cent in AY18 versus a 1.9 per cent in AY17. Haryana reported a rise of 16.7 per cent in AY18 versus 3.5 per cent in the previous year.

Scrutiny cases in Odisha reduced to 0.12 per cent in AY 2018-19, from 0.37 per cent in the year before. Similarly, for Punjab, it came down from 0.40 per cent to 0.14 per cent in AY 2018-19.

In West Bengal 0.25 per cent cases were picked up for scrutiny compared to 0.59 per cent scrutiny cases in 2017-18.

The government is aiming to finish faceless assessment in all 58319 cases picked up so far by October.  So far, it has disposed off around 8700 cases. The faceless assessment scheme rolled out in October 2019 eliminates the physical interface between an assessing officer and an assessee.