“Revenue is the backbone of administration” declared the 4th century B.C. Indian philosopher Kautilya (Chanakya) in his Arthashastra – the ancient Sanskrit treatise on statecraft, economic policy and military. A government’s power depends on the strength of its treasury. This is because the Government treasury finances defence, food subsidy, salaries, pensions, highways, ports, electricity grids, etc.
The Indian Government earns 80-90% of its total revenue from taxes, with the Income Tax department contributing nearly ₹20 lakh crore i.e. more than half of the total annual revenue. So, the natural corollary is that the “Income Tax department is the backbone of administration“.
The Income Tax department has increased direct tax collections from nearly ₹100 crore in 1947-48 to more than ₹19 lakh crore in 2023-24 i.e. a 19000-fold increase in 75 years. This growth in direct tax revenues have been critical in building a welfare state by:
- Making India self-sufficient in foodgrains (green revolution and public distribution system), state-run heavy industries and strategic sectors (atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services).
- Funding public goods and reducing poverty (from 70% in 1947 to 8% today) through social welfare schemes e.g., National Rural Employment Guarantee Scheme (NREGS), National Food Security Act (NFSA), Sarva Shiksha Abhiyan (SSA), Midday Meal Scheme, Ayushman Bharat Yojana, Pradhan Mantri Awaas Yojana (PMAY), Pradhan Mantri Ujjwala Yojana, Jal Jeevan Mission (JJM), Swachh Bharat Abhiyan (SBA) and various direct benefit transfer schemes (PM-KISAN, NSAP, etc.).
- Building the second-largest road network, fourth-largest railway network, third-largest electricity production capacity in the world, >150 airports and >200 ports.
Some may attribute this rise in direct tax collection solely to the growth in India’s Gross Domestic Product (GDP). But India’s GDP increased only 64-fold from ₹2.7 lakh crore at Independence to ₹ 173 lakh crore in 2023-24. Clearly, the growth of direct tax collections has far outpaced the GDP growth rate due to various taxpayer facilitation and enforcement measures of the Income Tax department such as:
- E-filing of returns.
- E-Payment of taxes.
- Electronic Refund processing.
- e-Nivaran.
- E-assessment and appeals.
- Pre-filled ITRs.
- E-Verification scheme.
- Vivad se Vishwas scheme.
- Safe Harbour rules and Transfer Pricing guidelines.
- Surveys and searches (“raids”).
Besides ensuring transparency, stability, certainty and ease of paying taxes by pioneering the adoption of Information and Communication Technology (ICT) and reforming tax policies, the Income Tax department has also led the fight against black money, benami property, corruption, money laundering and terror financing by investigating, searching and then seizing ill-gotten wealth and unaccounted income, especially post-demonetization. Each meticulously-planned and executed ‘raid’ leads to detection of anywhere between ₹10 crore to ₹10,000 crore black money.
It is quite commendable that India has perhaps the lowest cost of collection of income tax in the world. Despite the growing number of taxpayers and economic activities, the cost of income tax collection has decreased from 1.36% of the total collections in 2000-01 to only 0.51% of total collections in the fiscal year 2022-23. The Income Tax Department has implemented several strategic initiatives to achieve this remarkable efficiency in tax collection. These include leveraging advanced technologies, streamlining processes, enhancing taxpayer services through online platforms, and implementing robust enforcement measures to ensure compliance.
The Income Tax department also helps in the fulfilment of our Constitution-mandated socio-economic objectives as progressive direct taxes help to reduce income inequality and redistribute wealth in the society. Unlike indirect taxes (e.g. GST) which are levied equally on both the rich and the poor, direct taxes (e.g. Income Tax) are levied primarily on the rich, while the poor are largely exempt.
Besides collecting tax revenue for the Government, the Income Tax department also directly undertakes various socio-economic and environmental initiatives like organizing health/vaccination camps, disaster relief, Swacchta and tree plantation drives, and much more.
Therefore, as we honours the honest taxpayers on the 165th Income Tax Day, let us also celebrate the irreplaceable role played by the employees of the Income Tax Department in building an Atmanirbhar Bharat.
