Government Initiatives to Improve Direct Taxes

Direct Tax Collection

India collected more direct taxes during the current fiscal year than expected and above pre-pandemic levels. The Finance Ministry said that the net direct tax collection for FY22 increased 48.4% over FY21 and 42.5% over FY20. According to the statement, it is 34.96% greater than in FY19, before the epidemic began. The amount is higher than both the budget’s and the revised estimate’s respective projections of Rs. 11.08 lakh crore and Rs. 12.50 lakh crore. As the bank continues to update its data, the numbers are anticipated to rise. Additionally, the amount of advance tax collected increased by 40.75% over FY21, 50.56% over the same time in FY20, and 30.82% over FY19....

Surge in Direct Tax Collections

It also comprises personal income tax receipts, which include the Security Transaction tax of Rs. 1.11 lakh crore and Corporation tax receipts of Rs. 74,356 crores. Strong exports and the continuing numerous industrial and building operations are two factors that contributed to the increase in direct tax collection. The first quarter of 2021–2022 is predicted to have double-digit GDP (Gross Domestic Product) growth....

Government Initiatives to Improve Direct Taxes

For Personal Income Tax: If they do not take advantage of certain exemptions and incentives, individuals and cooperatives have the option under the Finance Act of 2020 to pay income tax at reduced rates. Vivad se Vishwas Act 2020: Declarations are now being submitted under Vivad se Vishwas to resolve outstanding tax issues. In addition to helping the taxpayers by bringing down escalating litigation expenses, this will assist the government by earning timely money. Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) was expanded to include a wider range of transactions to increase the tax base. These transactions include large cash withdrawals, international transfers, the purchase of luxury vehicles, the selling of items by e-*-commerce participants, the purchase of the real estate, etc....

Why Tax Collection is up?

The government attributed it to more stringent technology-based enforcement and compliance, including implementing the Annual Information Statement (IAS) last year. An overview of all financial transactions made throughout a financial year, including interest, dividends, transactions involving securities, mutual fund transactions, and international remittances, is provided to a taxpayer by AIS. Because of this, the amount of self-assessment tax, which is a type of personal income tax, increased by 255% to Rs. 43,500 crores from January to July. Recent Q1 results season revealed that owing to pent-up demand, most corporations produced larger profits, which resulted in higher advance taxes. After the pandemic, the services sector has also seen tremendous development and job growth, which may help to explain the pattern of tax growth. For transactions totaling more than Rs. 10,000, the government instituted a 1% TDS on virtual digital assets as of July 1 of this year....

Tax Elasticity

Tax elasticity, which is frequently measured by GDP, assesses the direct response of tax receipts to changes in the national income (or of tax revenue components to changes in parts of GDP). Simply said, tax elasticity shows how sensitive tax revenue is to changes in the chosen base measure over time. When assessing tax elasticity, tax rates, tax bases, and the effectiveness of revenue collection are not taken into consideration. The effects of changes in the levels of the underlying reference series are all that is taken into account by tax elasticity, not the consequences of changes in the tax structure....

Conclusion

Taxes were once used to fund the ruling classes, assemble armies, and erect defences. Taxation became extremely crucial for the country’s economic and social growth when nation-states evolved. It gives the government the resources it needs to offer the people products and services. India has made extensive changes in the areas of direct and indirect taxes, yet despite this, the country still has a low tax-to-GDP ratio, indicating that most people do not pay their fair share of taxes. As a result, more tax measures, such as tax simplification and technology adoption, are required to promote societal tax compliance....