Nearly 58.6 lakh returns were filed by first-time filers, a fair indication of widening of tax base, the Income Tax department has said. File
| Photo Credit: The Hindu

Most of India’s personal income taxpayers have moved to the simpler new tax regime in this assessment year, with 72% of those who had filed their returns by the July 31 deadline opting for it, even as the number of Income Tax (I-T) return filings rose 7.5% to hit a record high of almost 7.29 crore.

“Out of the total ITRs [I-T returns] of 7.28 crore filed for Assessment Year 2024-25, 5.27 crore have been filed in the new tax regime compared to 2.01 crore ITRs filed in the old tax regime,” the Central Board of Direct Taxes (CBDT) said on Friday, terming the increase in number of taxpayers under the new tax regime ‘heartening’.

The switchover has likely been expedited by significant changes in the new tax regime, originally introduced in 2020, effected in the Budget 2023-24 to make it attractive. Apart from making the new system ‘the default tax regime’ for taxpayers, Finance Minister Nirmala Sitharaman had slashed the tax rate slabs to five from six and raised the tax-free income limit to ₹3 lakh from ₹2.5 lakh.

Last year’s Budget had also granted a hike in the tax rebate limit from ₹5 lakh to ₹7 lakh a year under the new tax regime, compared with ₹5 lakh a year applicable for the old tax regime. With Budget 2024-25 raising the standard deduction to ₹75,000 from ₹50,000 and rejigging the tax slabs under the new regime again, there could be a greater impetus for taxpayers to opt out of the old regime.

Nearly 58.6 lakh I-T returns were filed by first-time filers, a fair indication of widening of tax base, the department said in a statement. A little over 6.77 crore returns had been filed by the July 31 deadline last year, while total ITR filings were 8.61 crore.

Taking the first-time filers into account, back-of-the-envelope calculations show that about 7.19 lakh taxpayers who had filed their returns on time last year, have not met the deadline this year.

Portal ramped up

Responding to tax practitioners’ concerns about slow processing and down times on the I-T e-filing portal ahead of the deadline, CBDT chairperson Ravi Agarwal had told The Hindu that those issues had been resolved by ramping up the portal’s handling capacity. The filings data for the last few days suggests this clicked.

From about 28 lakh filings on the portal on July 24, the number of ITRs filed soared to almost 70 lakh on July 31. “The filing of ITRs peaked on July 31 [due date for salaried taxpayers and other non-tax audit cases] with over 69.92 lakh ITRs being filed on a single day and a highest per hour rate of 5.07 lakh recorded between 7 p.m. to 8 p.m. on July 31,” the I-T department said.

The highest per second rate of ITR filings was 917, achieved on July 17 early morning, while the highest per minute rate of ITR filings was 9,367, at 8.08 p.m. on the deadline day.

“During the peak filing period, the e-filing portal successfully handled huge traffic, providing a seamless experience to taxpayers for filing of ITRs. On July 31, 2024 alone, successful logins stood at 3.2 crore,” the statement said.

Over 43.82% of ITRs were filed using the online utility available on the e-filing portal and the balance have been filed using offline ITR utilities.

As the rest of India scrambled to meet the July 31 deadline for filing Income Tax Returns (ITR), one state remained blissfully exempt from the tax frenzy – Sikkim. Thanks to a special provision under Section 10 (26AAA) of the Indian Income Tax Act, Sikkim has been spared from paying income tax since its merger with India. This exemption was granted to preserve the state’s existing tax structure, which was in place before it joined the Indian Union.

Prior to its accession to India, Sikkim had its own tax system, and its residents were not subject to the Indian Income Tax Act. The Government of India, to maintain the status quo, granted Sikkim special exemptions from income tax.

Sikkim Income Tax Exemption Act 

The Union Budget of 2008 repealed the Sikkim Tax Act and exempted Sikkim residents from paying income tax through Section 10(26AAA) of the Income Tax Act. This move was made to preserve Sikkim’s special status under Article 371(f) of the Indian Constitution.

Legal challenges

In 2013, the Association of Old Settlers of Sikkim and others challenged the constitutional validity of Section 10(26AAA) of the Income-tax Act, 1961, before the Supreme Court of India. They argued that the definition of “Sikkimese” under this section unfairly excluded two categories of individuals from tax exemption: 

1. Indians settled in Sikkim before it merged with India on April 26, 1975.
2. Sikkimese women who married non-Sikkimese men after April 1, 2008.

As per Section 10(26AAA), introduced by the Finance Act of 2008 (effective retroactively from the tax year 1989-90), the term “Sikkimese” included:

1. Individuals listed in the Sikkim Subjects Register before April 26, 1975.
2. Individuals added to the register by government orders in 1990 and 1991.
3. Individuals whose close relatives (father, husband, paternal grandfather or brother) are listed in the register.

This definition covered most of Sikkim’s population but excluded around 1 per cent – Indians who settled in Sikkim before April 26, 1975, and chose not to give up their Indian citizenship, so their names were not in the Sikkim Subjects Register. 

The taxpayers argued this exclusion was unfair and discriminatory. They wanted the tax exemption to include all individuals settled in Sikkim before April 1, 1975, whose names were not in the register. They also argued that denying the exemption to Sikkimese women marrying non-Sikkimese men after April 1, 2008, was discriminatory.

Supreme Court ruling

A two-judge bench of the Supreme Court ruled it was indeed discriminatory to deny tax exemptions to Sikkimese women married to non-Sikkimese men after April 1, 2008. This rule did not apply to Sikkimese men who married non-Sikkimese women or to Sikkimese women who married non-Sikkimese men before this date. The Court found this rule unfair and a violation of the constitutional right to equality. 

For Indians settled in Sikkim before April 26, 1975, whose names are not in the Sikkim Subjects Register, the judges agreed that the denial of exemption was discriminatory but suggested different solutions. Justice MR Shah struck down the rule denying the exemption, while Justice BV Nagarathna used Article 142 of the Constitution to direct the Centre to add a clause to Section 10(26AAA) to grant tax exemptions to these individuals. Until the law is amended, she ordered that these individuals should still get the tax exemption under Section 10(26AAA).

The I-T department has seen a substantial rise in number of transactions. Photo: incometax.gov.in

The July 31 deadline for filing Income Tax (I-T) returns is unlikely to be extended. The Central Board of Direct Taxes (CBDT) has intervened to fix recent glitches and downtimes reported on the I-T portal by ramping up its back-end capacity to cope with a higher workload experienced this year.

Acknowledging taxpayers’ concerns about delayed generation of TDS (Tax Deduction at Source) and Form 16 certificates, and the “slowness” of the I-T portal, CBDT chairperson Ravi Agarwal told The Hindu these issues have now been resolved, and as many as 28 lakh tax returns were filed on Wednesday with no downtime reported.

“Even per-hour filings are now at an all-time high. So therefore, I think we can say with confidence that over the next six days, we should be able to take care of it. Most of the problems have been addressed and sorted out, and yesterday, there was no apparent reporting of any of these problems like downtime, and even today, there is no issue so far,” he said late Thursday afternoon.

The I-T department has seen a substantial rise in number of transactions reported this year, Mr. Agarwal said, and some of the government officials in charge of issuing such deduction certificates were also occupied with election duty, delaying some issuances.

“Then there was a report of slowness on the website and people were finding it difficult. So now, some corrective measures have been taken in terms of ramping up the hardware, and also putting those solutions in place,” the CBDT chief assured.

“There has been a 15% growth in TDS transactions and about 30% growth in third-party transactions, and that has to get populated in the pre-filled I-T forms and the corresponding TDS certificates also have to be issued. Now, what happened was that because of elections, the deductors from the government side were engaged in the election duty… so all that got delayed, and then all of a sudden, we got that filing in bulk as far as TDS statements are concerned.”

“To process those statements and convert them into TDS certificates, was taking time, and involved a lot of data. But we have been able to resolve that, and we are up to date on the issue of TDS certificates not being downloaded or not being made available,” Mr. Agarwal said.

Image used for representative purpose. File
| Photo Credit: MURALI KUMAR K

Resolving long-pending tax dispute, Finance Minister Nirmala Sitharaman on Thursday, proposed withdrawing all outstanding direct tax demands upto ₹25,000 from 1962 to 2009-10. In her interim budget speech, she noted that a large number of petty or disputed direct tax demands were burdening the system, dating as far as 1962. This would help 1 crore taxpayers, said Ms. Sitharaman.

Read : Budget 2024 live updates | Interim budget leaves tax structure untouched; FM details Centre’s achievements

“To improve taxpayer services, there are a large number of petty or disputed direct tax demands, many of them dating as far back as 1962, which cause anxiety to taxpayers. I propose to withdraw such outstanding direct tax demands upto ₹25,000 pertaining to years upto 2009-10 and Rs. 10,000 for the period from 2010 to 2015. This will help 1 crore taxpayers,” the Finance Minister said.

She also highlighted the government’s move to introduce Faceless Assessment and Appeal, thereby imparting greater efficiency, transparency and accountability and that by introducing a new form 26AS to file income tax returns the process has been made “simpler and easier”. Currently, the average time taken for processing of returns stands reduced from 93 days to 10 days from 2013-14, Ms. Sitharaman said.

The Finance minister presented her sixth consecutive budget speech to Parliament on Day 2 of the Budget session. Her hour-long speech was for an interim budget for the FY 2024-25 as a ‘stop gap’ measure for the transition period between April and June/July. After the Lok Sabha elections scheduled to be held in April-May, the new government will present a full-fledged budget. The roadmap for a ‘Vikasit Bharat’ (developed India) will be unveiled in the next budget speech.

In September last year, the income tax department asked taxpayers to respond to its intimation regarding outstanding demands for 2022-23 to clear refunds faster. In 2022-23, as many as 7.09 crore income tax returns (ITRs) were filed of which 6.96 crore ITRs were verified and 6.46 crore processed. The I.T department said that the notices for unsettled tax demands were issued to provide taxpayers relief in line with “principles of natural justice”.

With the withdrawal of historical tax demands, the hassles faced by both the I.T department and citizens will be greatly reduced.

Tax payers file their income-tax returns. As many as 7.41 crore I-T returns have been filed so far this year, which include 53 lakh first-time tax filers. File
| Photo Credit: The Hindu

India’s tax base has widened sharply since 2013-14, with individuals moving up the income ladder and the proportion of super-rich taxpayers’ incomes declining, the Central Board of Direct Taxes (CBDT) said on Thursday, days after the Congress cited income tax data to show widening income inequality in the country.

The overall number of income tax (I-T) returns filed by individuals has risen from 3.36 crore to 6.37 crore through assessment years 2013-14 to 2021-22, while there is also an increase in number of returns filed by individual taxpayers across various ranges of gross total income, the CBDT said in a statement.

“In the range of gross total income up to ₹5 lakh, the number of returns filed by individual taxpayers has increased from 2.62 crore in AY 2013-14 to 3.47 crore in AY 2021-22, registering an increase of 32%. This range of income includes individuals having income below taxable limit who may not be filing returns,” the board pointed out.

Migration to higher range

For higher income ranges of ₹5 lakh to ₹10 lakh, and ₹10 lakh to ₹25 lakh, the number of individual returns filed surged 295% and 291% individuals over the same period, respectively. “This indicates that individual taxpayers are showing a positive trend of migration to higher range of gross total income,” the CBDT said.

Digging deeper into the data reveals that the proportionate contribution of gross total income of top 1% individual taxpayers vis-à-vis all individual taxpayers has decreased from 15.9% to 14.6%, the board said, while the share of the bottom 25% taxpayers increased from 8.3% to 8.4% over the same period.

“The proportion of gross total income of middle 74% group of individual taxpayers increased from 75.8% to 77% in the above period,” the statement said, adding that the average gross total income for individual taxpayers increased from about ₹4.5 lakh to about ₹7 lakh over the nine-year period, representing an increase of 56%.

“The increase in average gross total income for top 1% individual taxpayers is 42% while that for bottom 25% individual taxpayers is 58%,” it added.

The data indicates “robust growth in the gross total income of individuals across different income groups subsequent to AY 2013-14”, the board emphasised, adding this was reflected in the increase in net direct tax collections from ₹6.38 lakh crore in 2013-14 to ₹16.61 lakh crore in 2022-23.

As many as 7.41 crore I-T returns have been filed so far this year, which include 53 lakh first-time tax filers.

Over six crore taxpayers had filed their income tax returns (ITRs) by Sunday evening, a day before the filing deadline, which the Income Tax Department termed a “new milestone” as this is significantly higher than the total returns filed by July 31, 2022.

Nearly 26.8 lakh taxpayers filed their tax returns by 6:30 p.m. on July 30, while more than 1.3 crore “successful logins” were recorded on the e-filing portal of the IT department. Similar logins on July 29 stood at 1.78 crore.

“We extend our gratitude to taxpayers and tax professionals for helping us reach this milestone, and urge all those who haven’t filed ITR for AY 2023-24, to file their ITR at the earliest to avoid last-minute rush,” the department said, signalling that there might not be an extension to the July 31 deadline, though there have been pleas to do so in the wake of the strife in Manipur and the floods in parts of the country.