Changing face of direct taxes: Transformation over a decade

A paradigm shift has been brought in the way the income tax department has been dealing with the taxpayers

The direct tax regime has shed its old skin during this decade to metamorphose into a new, modern incarnation. In its continuous striving to achieve the twin objectives of improving the tax ecosystem for encouraging voluntary compliance as well as augmenting revenue generation, the income tax department has been registering exemplary accomplishments. Numerous measures have been taken to seamlessly align with the overarching policies of the government and achieve the national milestones of development.

The digital revolution within the department has been a trendsetter. A paradigm shift has been brought in the way the department has been dealing with the taxpayers. A big leap can be witnessed from switching over from manual system to completely electronically managed income tax processes, the journey has been worthwhile and has touched every taxpayer’s life in a positive way.

 

The government of India launched an ambitious faceless regime under the taxpayer-friendly goal of "Transparent Taxation - Honoring the Honest”. Under this, the Faceless Assessment Scheme (FAS) was launched by Prime Minister Narendra Modi in August 2020 and FAS followed soon after. The FAS regime has heralded an era of transparency in the process of income tax scrutiny/appeal and empowered the taxpayers to interact with the department in smoother and expedient manner.

The department reposes trust in its taxpayers and several progressive steps to encourage voluntary tax compliance and facilitate a transparent and non-intrusive tax administration have been taken. One such major initiative is the e-verification scheme, 2021, which aims to use information technology to share and verify such financial transaction information with the taxpayer which appears to be either unreported or under-reported in the income tax return filed by them.

Another stride in this direction is the introduction of ‘updated returns’ by the Finance Act, 2022. With the growth of the economy, taxpayers are undertaking multiple financial transactions and are prone to commit omissions or mistakes in correctly reporting their income tax liability. To address their concerns, the ‘updated returns’ provided an opportunity for the taxpayers to update their returns by voluntarily admitting omissions or mistakes and paying an additional tax. It, therefore, ensures a litigation-free environment.

The relentless efforts behind digitalisation of the department have also yielded results by significantly increasing the tax base and revenue generation. The number of returns filed has galloped from 40.4 million in FY 2014-15 to 77.8 million in FY 2022-23, registering a growth of 93 per cent. Net direct tax collections have increased by 160.17 per cent from Rs 6.38  trillion in FY 2013-14 to Rs 16.61 trillion in FY 2022-23, reflecting a tax buoyancy of 2.52 in FY 2021-22, which is the highest direct tax buoyancy recorded over last 15 years.

The government’s drive for simplification of return filing and reducing litigation has been translated into action by introducing concessional tax rates as an option to individual taxpayers for paying income tax at lower slab rates if they do not avail of the specified exemption or deduction. The reduced tax rates have been made as default tax rates by the Finance Act, 2023 with the choice of opting out of the above scheme available to the taxpayers.

Tax policy is the cornerstone for socio-economic development of any nation. The government has taken several measures to foster growth and development in certain key industry segments that affect medium to small taxpayers. Many tax benefits have been provided to eligible start-ups which are being regularly updated in close conjunction with DPIIT (Ministry of Commerce). The tenure of these benefits has also been further extended this year to help them recover from the Covid-19 backlash. To further promote the Cooperative sector which is the backbone of the rural economy, a concessional tax rate for new manufacturing cooperative societies and a reduced rate of alternate minimum tax have been introduced in the last two years to bring them at par with the companies.

Agnipath Scheme has been floated by the government in November, 2022 to expand the employment opportunities for our youth. To support this initiative, tax reliefs have been provided for any contribution made to the Agniveer Corpus Fund and any payments made to the Agniveer from the fund.

To promote economic equity which is the essence of progressive taxation, new tax measures have been employed to tax the high net worth taxpayers such as putting an upper limit on the amount of deduction that can be claimed on the re-investment of their capital gain amount by selling any property. To discourage the use of insurance policies as investment tools, a provision to tax the high premium insurance Policies has been introduced.

The department has been curating its tax policy to boost foreign investment and bring tax certainty to create a conducive environment for businesses to thrive in the country. Towards this goal, a record-breaking number of 95 Advance Pricing Agreements with overseas taxpayers have been signed by CBDT in FY 2022-23.

The emergence of this new ‘Avatar’ of the income tax department with its taxpayer-friendly face and encompassing all the features of a modern tax regime is geared up to handhold the nation on its path of accelerated economic progress and development.

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The author is CIT (IT&CT), Central Board of Direct Taxes