Advancements and Challenges in India’s Taxation System
In recent years, the tax filing process in India has seen a transformation with the introduction of e-filing and the reduction of corporate tax rates. These measures are designed to boost investments and provide clarity on transfer pricing through the Advance Pricing Agreement (APA) program, which has seen a record 125 APAs signed in the fiscal year 2023-24. The Modi government’s efforts have also been directed at combating black money and enhancing tax administration through technology, leading to improved efficiency and enforcement capabilities.
The New Tax Regime, introduced to streamline personal taxation, reduces reliance on deductions and exemptions, aiming for simplicity over flexibility. These reforms have contributed to a substantial increase in direct tax collection. From Rs 6.38 lakh crore in net direct tax collections in 2013-14, there has been a 200% jump to Rs 19.18 lakh crore in 2023-24. The number of Income Tax Returns (ITRs) filed reflects this growth, with a 104.91% increase from 3.80 crore in 2013-14 to 7.78 crore in 2022-23.
Despite these successes, challenges remain, particularly with the Goods and Services Tax (GST) system introduced seven years ago. Taxpayers find the GST structure complex, with issues like taxation on employer-employee transactions and the uncertain application of pre-GST decisions under the new framework. Concurrent investigations by authorities further complicate matters for taxpayers.
Experts like Shivam Mehta from Lakshmikumaran and Sridharan highlight the need for the Goods and Services Tax Appellate Tribunals to become operational to alleviate taxpayer concerns. The tribunals are expected to start functioning by mid-2023.
While direct taxes have seen improvements, the Income Tax Act’s complexity still poses problems. High personal income tax rates, when compared globally, may affect compliance. In FY24, personal income tax collection surpassed corporate taxes, with Rs 10.44 lakh crore collected from individuals versus Rs 9.11 lakh crore from corporations. Litigations from aggressive tax claims and transfer pricing disputes continue to challenge the system, indicating a need for a broader tax base and more efficient processing of tax refunds and assessments.
