It is that time of the year, when the salaried class starts praying for incremental tax concessions in the annual budget. Analysts, however, say that the government should focus on increasing the tax net instead of announcing new income tax concessions.
(Also read: Income Tax Expectations From Arun Jaitley)
That's because only 3 per cent of over 1 billion people in the country are estimated to pay income tax. Those who earn Rs 21,000 and more (per month) have to pay taxes, but many small businesses, professionals (such as doctors and lawyers) and rich farmers do not pay taxes.
Tax evasion is not limited to smaller tax payers, analysts say. The number of people who declare annual income of over Rs 1 crore is abysmally low at just around 50,000 in the country, they added.
"The number of income tax payers in India is woefully small, and the prosperity the country has achieved post reforms, do not reflect in number of taxpayers... We have to devise systems so that we can be able to bring tax avoiding population within the tax net," said Yashwant Sinha, former finance minister. (Watch)
According to Mr Sinha, the government has taken "baby steps" by announcing several measures on cash transactions, which could add 30-40 lakhs more tax payers per year.
The Goods and Services Tax (GST), however, could be a big step in bringing more people in the tax net, he added.
"If you had GST for instance, that will help... You will not have a separate sales tax, separate services tax, and a separate excise duty, etc. and you will have income tax. So, people in this country will be paying only two kinds of taxes... If a person is paying a certain amount of excise or service tax and he is not paying income tax, we can easily net him in income tax by finding this out," Mr Sinha said.
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