Future of income tax in India: Search for a better alternative…

Abstract

According to Tax Return Statistics published by the Income Tax (IT) department of India in October 2016, for the assessment year 2014-15, only 3.91 crore in India filed IT returns. Out of these, 1.85 crore paid zero income tax. This means only around 1.5% of the total population actually paid taxes which, even after considering the tax exemptions on the agricultural income, questions the efficiency of our personal income tax collection system. Also, when people involved Agriculture and allied sectors are exempted from paying Income Taxes, many others fraudulently take shield of such exemptions, showing how the current Income Tax system can be played with. This leads us to ponder on whether the honest tax payers in India are penalised for the system’s inability to prevent tax evasions and question the future of personal income taxes in India. Economist Nicholas Kaldor had also advocated for replacing Income taxes with consumption taxes, stating it as a better alternative in his work An Expenditure Tax.