In order to become a developed economy by 2047, India needs to optimise tax generation to spend on all-round development, including infrastructure. In an exclusive interaction with Fortune India, Central Board of Direct Taxes chairman Nitin Gupta talks about use of technology to optimise the taxation system and trends such as personal income tax collections surpassing corporate tax collections — a sign of a developed economy.
This edited Q&A has been condensed for space and clarity.
USING DATA
How are you scaling up data matching? What all data sets do you need to look into? Can you give us some sense of use of AI, big data by the department?
We have humongous data. The size of the data is a challenge we are working on. We already have a data set of all tax deductions or collections as TDS (tax deducted at source) or TCS (tax collected at source). That data is populated. Another data set is from reporting entities, about purchase of immovable property, market transactions of securities, mutual funds, interest payments even if there is no TDS.
We can add new data sets. A few data sets are collected not for us but other jurisdictions because we are compliant with MLC or the multilateral convention; we collect data from reporting entities about residents of other countries and share with more than 125 countries. We also have data from GSTN and government departments such as corporate affairs ministry. But what is important is how we analyse and utilise such humongous data.
What is the ultimate you are looking at in terms of pre-filled forms?
We are doing this for individuals. Many components of the return are pre-filled based on data from different sources such as deductors and reporting entities. We can think about expanding it to others. If we increase the area of a reporting entity and get more data like, for instance, on capital gains, that could be the way. But it will take some time.
Government plans to make India a developed country by 2047. What could be the initiatives towards that in terms of broadening the tax base?
We are talking about 2047 here. We don’t know what way technology will evolve as it is changing quickly. Widening the base is a guiding principle. Direct tax-to-GDP ratio should also be higher. We are working in that direction. But we can’t leapfrog. It requires a lot of work at the back-end. We have to interact with stakeholders. Data collection from reporting entities has to be a mutually interactive process without adding to their cost of compliance.
But green shoots are visible. For current year, direct tax-to-GDP ratio is one of the highest at 6.6%. Next year, it is projected to be 6.7%, the highest ever. Corporate tax collections are higher than personal income tax collections; this is a sign of a developed world.
We can’t gallop all the time. We need to see what has happened and consolidate. We are probably in that phase right now. We are trying to consolidate the work which we have already done.
EASE OF TAXPAYER
How do you plan to ensure no harassment to the taxpayer? To what extent has the system become fully digital where there is no one-on-one contact with the taxpayer?
We are very particular that the entire data is transmitted digitally in secure mode and retained as such. We are communicating with the taxpayer through the e-filing portal. Secondly, we are communicating at the stage of processing, which is again fully digital. Scrutiny, assessment and audit are also faceless. Penalties are faceless. So are appeals. Most of our processes, may be 95%, are digital. A few forms may not be digital as of now but we are trying to cover those. Our endeavour is to be transparent, to show what we have. Data helps the taxpayer as he need not check all bank accounts for data. We collect data from GSTN and bring it into the AIS statement. So, that is a nudge to the taxpayer. That helps the tax department as well.
What has been the trend in corporate tax collections after the new tax rate came into effect?
Since these 15% and 22% corporate tax rates were introduced in 2019, there has been a dip, not in terms of numbers but in terms of rate of growth of corporate tax collections. Growth in average corporate tax collections is below two digits. At the same time, this is the impact of reduction in corporate rate.
Finance minister said last year that there would be a special drive to reduce pendency of appeals. What has been the result of those efforts so far?
Appeals on direct tax side are technical. The officer has to understand the right perspective before a decision. It takes some time. It is not a mechanical process like what happens in CPC (centralised processing centre) where data is machine-read and decision taken by way of software.
In the last Budget, government announced creation of a new appellate authority, JC (Joint Commissioner) Appeals. About 60 JCIT (Appeals) are working. Cases have been segregated from CIT (Commissioner of Income Tax) Appeals and given to JC (Appeals). This notification has already been passed. We have a target to set up 100 JCIT (Appeals), but we are short of manpower.
Appeals with CIT (Appeals) are being monitored thoroughly to see that they keep disposing of numbers expected of them. The disposal should pick up from this financial year. We had around five lakh appeals as on April 1, 2023, before CIT and JCIT (Appeals). Let us see the position when we close the books and open for 2024.
How much has the tax base expanded?
We are getting good results. Last year (2022-23), filing increased 5%. In 2023-24, it is up 9%. It is improving and we believe there will be better compliance with lower taxes and use of technology.
How significant is withdrawal of low-value tax demands announced in the Interim Budget?
We are one of the oldest departments of government of India. There are legacy demands in registers as at one point everything was manual and non-availability of some records, reconciliation issues, could have crept in during digitisation. The finance minister said we would like to extinguish small, old demands of a certain time period so that our books are clearer. We will do the needful quickly. The quantum of such demands, cumulatively, could be ₹3,500-3,600 crore as against our annual collection of ₹19.45 lakh crore. Existing demands will remain as they are a few lakh crore rupees. We are working to address those also. We are looking at all demands in a holistic manner.
How many taxpayers will this benefit?
Roughly, it will cover more than one crore entries, and 75-80 lakh unique PANs. We don’t need to interact with the taxpayer on this. Once government comes out with the scheme, we have to extinguish the demand; it will happen automatically.
What explains the high growth in direct tax collections in Revised Estimate (RE) of Budget FY24?
The growth cannot be attributed to a single factor. One is better compliance. But at the same time, use of technology, facilities given to taxpayers, are paying dividends. Pre-filling of return, ease of filing, all these help the taxpayer. We are on the path of providing more and more services to taxpayers for better compliance. The growth rate projected in revised estimates for current year is 16.95% over actual collections of last year. It translates into ₹19.45 lakh crore. As on January 31, 2024, we are growing at an average of 20%. Hence, we are hopeful we will achieve the target even after factoring in refunds during remaining two months of this financial year.
What is the status of the old regime vis a vis the new regime in personal income tax?
Our personal income tax collections are growing. The no-frills scheme for individuals, launched earlier, was not a great success. In Budget 2023, it was revamped and a sweetened regime offered to taxpayers. They have the option of remaining in the old regime or opt for the new one. But the new regime is the default regime as of now. In Budget, we said we will forego ₹39,000 crore tax on account of the new regime.
We expect a sizable chunk of people to opt for the new regime as it is beneficial for small income earner as well as top earner. For the latter, surcharge is reduced. For the low income person, the basic slab where no tax has to be paid is now ₹7 lakh after rebate. If you account for standard deduction, it is ₹7.5 lakh. There will be gains for those in between, too. So, we are of this view that around 60% taxpayers should opt for the new regime and 40% remain in the old regime.
Any thoughts on introducing transaction tax by eliminating income tax?
We don’t know. There could be several ideas. We can’t be working on every idea. We get thousands and thousands of requests and ideas. It is not possible to analyse each and every idea to that extent.