The I-T department’s move to expand the country’s direct tax base and boost tax buoyancy comes after the sharp tax rate cuts for individuals this financial year moderated I-T revenue growth, the people cited above said on the condition of anonymity.
The GST system involves extensive data collection at every stage of the production value chain, as well as in goods transport and real-time reporting of wholesale transactions on a designated portal. This has helped the authorities crack down on large-scale invoicing scams.
Tapping into this wealth of information is expected to help the I-T department enhance voluntary compliance. The department is increasingly using its ‘nudge’ approach—telling assessees what the department already knows about under-reported income and giving them the opportunity to revise or update tax returns and come clean—to enhance compliance.
“Revenue collection is the product of efficient tax administration and the department’s ability to reach out to the relevant assessees. The more efficient the data collection, the better the revenue,” one of the two people cited above said, adding comprehensive outreach and data collection are critical.
“For this, we use information technology, simplified forms and procedures and leverage the technological advancements of other agencies like GST, which already has an advanced, technology-driven system. Better data leads to better compliance,” the person said on the condition of anonymity.
“How we communicate with the taxpayers, including the periodicity and tenor of communication to different categories, is also crucial,” said the person, emphasizing that stepping up efficiency in data collection and converting relevant data into revenue through outreach efforts and voluntary compliance will be a major strategy for the IT department in the coming months.
Queries emailed to the finance ministry and to the Central Board of Direct Taxes seeking comments remained unanswered at the time of publishing.
With direct tax collections growing by less than 5% year on year in FY26, up to 11 January, the need to expand voluntary compliance is evident, said Deepashree Shetty, partner, global mobility services, tax & regulatory advisory, BDO India.
“A trust-based approach, supported by emerging technologies that simplify compliance can make a meaningful difference. Behavioural initiatives like the nudge campaign have already improved taxpayer responsiveness by encouraging non-intrusive self correction,” said Shetty. Scaling such efforts through deeper data analytics, pre-filled returns, and seamless digital interfaces can significantly reduce the administrative burden on taxpayers and, in turn, strengthen accurate income reporting and voluntary disclosures, added Shetty.
Tax revenue growth, scope for improvement
The person quoted above also said that the revised direct tax collection target of ₹24.2 trillion for the current financial year will be met. With cooling inflation getting reflected in nominal GDP growth and the effect of income tax rate cut given this fiscal to stimulate consumption, the direct tax revenue target for this fiscal has been revised down by ₹1.26 trillion in the Union Budget presented on 1 February.
It is important to note that India’s direct tax base still captures only part of the country’s real income activity, said Amit Maheshwari, managing partner, AKM Global, a tax and consulting firm.
“Since tax rates have already been lowered to competitive levels, the policy focus has to be on widening and deepening the tax base through better income reporting rather than raising rates,” added Maheshwari.
The I-T department can widen and deepen tax base by using data and technology in a non-intrusive way through pre-filled returns using information from employers, banks and financial intermediaries, data-based reminders where there are clear gaps, and risk-based analytics to focus scrutiny only on higher-risk cases, added Maheshwari of AKM Global.
“Such gentle nudges, within the existing framework of the Income-tax Act and the faceless, digital system, can make compliance easier for honest taxpayers, reduce disputes, and improve voluntary tax compliance without making the system adversarial,” added Maheshwari.
Direct tax revenues of the central government are expected to grow 11% next financial year, but given that the nominal GDP growth is expected to further pick up to 10%, tax buoyancy—or how fast tax revenue grows over economic growth rate–is expected to be 1.13, nearly at par with this fiscal’s 1.16.
The move to leverage GST data comes in the context of the total income reported by individuals and businesses in income tax returns matching only about less than 40% the country’s nominal GDP.
As per data available from the tax department, the total income reported by individuals and businesses for FY23 stood at ₹102.5 trillion, about 38% of the ₹268.9 trillion nominal GDP reported for the year.
“Is it sufficient? The answer is no. We should look at the tax landscape in this spirit also,” added the first person quoted above.
I-T is searching GST data to widen tax base
The I-T department’s move to expand the country’s direct tax base and boost tax buoyancy comes after the sharp tax rate cuts for individuals this financial year moderated I-T revenue growth, the people cited above said on the condition of anonymity.
The GST system involves extensive data collection at every stage of the production value chain, as well as in goods transport and real-time reporting of wholesale transactions on a designated portal. This has helped the authorities crack down on large-scale invoicing scams.
Tapping into this wealth of information is expected to help the I-T department enhance voluntary compliance. The department is increasingly using its ‘nudge’ approach—telling assessees what the department already knows about under-reported income and giving them the opportunity to revise or update tax returns and come clean—to enhance compliance.
“Revenue collection is the product of efficient tax administration and the department’s ability to reach out to the relevant assessees. The more efficient the data collection, the better the revenue,” one of the two people cited above said, adding comprehensive outreach and data collection are critical.
“For this, we use information technology, simplified forms and procedures and leverage the technological advancements of other agencies like GST, which already has an advanced, technology-driven system. Better data leads to better compliance,” the person said on the condition of anonymity.
“How we communicate with the taxpayers, including the periodicity and tenor of communication to different categories, is also crucial,” said the person, emphasizing that stepping up efficiency in data collection and converting relevant data into revenue through outreach efforts and voluntary compliance will be a major strategy for the IT department in the coming months.
Queries emailed to the finance ministry and to the Central Board of Direct Taxes seeking comments remained unanswered at the time of publishing.
With direct tax collections growing by less than 5% year on year in FY26, up to 11 January, the need to expand voluntary compliance is evident, said Deepashree Shetty, partner, global mobility services, tax & regulatory advisory, BDO India.
“A trust-based approach, supported by emerging technologies that simplify compliance can make a meaningful difference. Behavioural initiatives like the nudge campaign have already improved taxpayer responsiveness by encouraging non-intrusive self correction,” said Shetty. Scaling such efforts through deeper data analytics, pre-filled returns, and seamless digital interfaces can significantly reduce the administrative burden on taxpayers and, in turn, strengthen accurate income reporting and voluntary disclosures, added Shetty.
Tax revenue growth, scope for improvement
The person quoted above also said that the revised direct tax collection target of ₹24.2 trillion for the current financial year will be met. With cooling inflation getting reflected in nominal GDP growth and the effect of income tax rate cut given this fiscal to stimulate consumption, the direct tax revenue target for this fiscal has been revised down by ₹1.26 trillion in the Union Budget presented on 1 February.
It is important to note that India’s direct tax base still captures only part of the country’s real income activity, said Amit Maheshwari, managing partner, AKM Global, a tax and consulting firm.
“Since tax rates have already been lowered to competitive levels, the policy focus has to be on widening and deepening the tax base through better income reporting rather than raising rates,” added Maheshwari.
The I-T department can widen and deepen tax base by using data and technology in a non-intrusive way through pre-filled returns using information from employers, banks and financial intermediaries, data-based reminders where there are clear gaps, and risk-based analytics to focus scrutiny only on higher-risk cases, added Maheshwari of AKM Global.
“Such gentle nudges, within the existing framework of the Income-tax Act and the faceless, digital system, can make compliance easier for honest taxpayers, reduce disputes, and improve voluntary tax compliance without making the system adversarial,” added Maheshwari.
Direct tax revenues of the central government are expected to grow 11% next financial year, but given that the nominal GDP growth is expected to further pick up to 10%, tax buoyancy—or how fast tax revenue grows over economic growth rate–is expected to be 1.13, nearly at par with this fiscal’s 1.16.
The move to leverage GST data comes in the context of the total income reported by individuals and businesses in income tax returns matching only about less than 40% the country’s nominal GDP.
As per data available from the tax department, the total income reported by individuals and businesses for FY23 stood at ₹102.5 trillion, about 38% of the ₹268.9 trillion nominal GDP reported for the year.
“Is it sufficient? The answer is no. We should look at the tax landscape in this spirit also,” added the first person quoted above.
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