Income Tax Notification

7.28 Crore ITRs Filed by July 31, 2024; 72% Opt for New Tax Regime

Overview

According to India’s financial statistics ending July 31, 2024, the country touched an all-time high of 7.28 crore ITRs filled for the AY 2024-25, indicating a 7.5% growth from last year. For instance, the taxpayers voted for the new tax system, demonstrating a shift of compliance preference towards the new system by 72 per cent of the taxpayers. 69.92 lakh ITRs were filed on the busiest filing day, demonstrating the urgency that taxpayers must fulfil to meet deadlines.

This increase in filings shows increased taxpayer compliance due to increasing awareness and acceptance of the duty to pay taxes to governments, spearheaded by technological changes. Additionally, the record first-time filers show expansion of the tax base and more people becoming a part of the positive economy, which aims to keep the trend of positive tax compliance active in India.

Past Record of ITR Filings in India

Income taxation in India started during British rule when it was known as the British Indian Empire. Still, the present body and structure of income taxation were introduced in 1961 with the passing of the Income Tax Act 1961. This act laid a framework for taxation assessments in India, which helped in dealing with the issue of tax compliance.

Major Events in the History of Indian Taxation

The Income Tax Act (1961): This act was a groundbreaking move in achieving a more standardized framework of income taxation in India with clear regulations for tax assessment, tax roll, and compliance.

Introduction of E-Filing (2006): The option to electronically file tax returns, which started in 2006, made the whole process efficient. It simplified and shortened the time after which taxpayers could file the returns online, saving them from complex paperwork and documentation.

The New Tax Regime (2020): In the 2020 budget, an important decision was introduced that gave the public an option to choose how they want to file their tax returns. The Indian government proposed a new tax policy that simplifies the process of taxation and lowers tax rates. This regime gave the taxpayers a choice:  either to stick with the old regime and have numerous deductions and exemptions or accept the new one with lower rates and fewer deductions.

Impact of the COVID-19 Pandemic: COVID-19 introduced unforeseen complications, so the government had to extend the deadlines for filing taxes and initiate additional measures. These actions instilled compliance among the people and led to a rise in the number of ITRs filed.

Digital Transformation and Financial Literacy: The key focus areas of the government, particularly in the fiscal year 2020, included improving taxation through digitization and financial education of the taxpayers which has greatly contributed to the improvement of awareness of the taxpayers and also the compliance. The measures are thereby taken to inform the general public about their tax duties and compel many more people to file their returns.

Current Data and Insights

The following are some of the main points that concern filings of ITR for AY 2024-25, as seen from the data provided by the Income Tax Department:

• Total ITRs Filed: 7.28 crore
• Percentage Increase from Last Year: 7.5%
• ITRs Filed Under New Tax Regime: 5.27 (72%)
• ITRs Filed Under Old Tax Regime: 2.01 (28%)
• First-Time Filers: 58.57 lakh

Such an increase in the number of filings is indicative of the enhancement in the public’s awareness of tax responsibilities. Most significantly, concerning the functionality of the e-filing portal, the highest activity traffic was recorded at 5. 07 lakh ITRs filed within just one hour.

Breakdown of ITR Forms

The distribution of ITR forms provides further insights into taxpayer preferences:

• ITR-1: 3.34 crore (45.77%)
• ITR-2: 1.09 crore (14.93%)
• ITR-3: 91.10 lakh (12.50%)
• ITR-4: 1.88 crore (25.77%)
• ITR-5 to ITR-7: 7.48 lakh (1.03%)

The data indicated that the majority of taxpayers preferred straightforward and easy-to-understand forms. ITR-1 was the most preferred form, with 29.9% of the respondents stating that they prepared and filed this form.

E-Verification and Processing

At the end of the year 2024:

• E-Verified ITRs: 6. 21 crore
• Processed ITRs: 2. 69 crore

The adoption of Aadhaar-based One Time Password during the process of e-verification rose to a staggering 56%. Such a high level of e-verification shows that the public is rapidly embracing electronic solutions, which improves compliance and cut down on bureaucracy amongst the tax authorities.

The Trends in Tax Compliance

The significant preference for the new tax regime can be attributed to several factors:

Lower Tax Rates: The new regime introduced low tax slabs, which can be encouraging to many taxpayers, more particularly those who do not qualify for numerous deductions.

Simplicity: The new structure of taxation makes it easy for individuals and companies to file their taxes since there is no necessity for sundry deductions. This policy simplification has a positive implication as it enhances the taxpayer’s comprehension of his/her responsibilities as well as compliance with the set requirements.

The overly lengthy tax calculations have been solved by the government thus enabling people to file their taxes with efficiency and within the stipulated time.

Government Initiatives: The government has carried out various awareness campaigns along with simplified tax processes, thus contributing to the popularity of the new regime. There is awareness of the new regime, and the government is also actively engaging in assisting the taxpayers in adapting to the change.

Public awareness campaigns promoting easy filing procedures and possible savings have resonated with the public.

Changing Demographics: A growing number of younger workers—who are less dependent on traditional deductions and more tech-savvy—are choosing to use the new system. In the upcoming years, variations in tax compliance are probably going to be influenced by this demographic shift as well.

Tax compliance in India will change in the future as more young professionals join the workforce and express a preference for easier, more transparent tax procedures.

Increase in First-Time Filers

An analysis of the returns filed for the current year remarkably showed a record of the first-time filers of 58. 57 lakhs enhanced the government’s tax base and ensured equitable tax compliance. This trend can be attributed to:

Financial Literacy Programs: Campaigns undertaken to raise the public’s awareness of their obligation and responsibility to pay taxes have led to an increase in tax return filing. The government and other non-government bodies have held workshops, forums, seminars, and other similar activities to help people understand the necessity of paying taxes. These programs have helped simplify the tax process and enabled people to accept responsibility for their taxes.

Increased Employment Opportunities: A booming employment sector means that more people earn taxable income, thus increasing the number of new taxpayers. Freelance work and the gig economy have also aided in the rise in the number of taxpayers in the country. Given the fact that more persons engage in formal employment and entrepreneurial ventures, there is a possibility of an increased number of potential taxpayers.

Simplified Processes: Submitting returns has become more convenient for first-time filers due to the convenience of filing online and the availability of user-friendly platforms. Accessibility has been substantially improved with the introduction of mobile applications for tax filing, especially for younger taxpayers. It is now simpler for new taxpayers to manage the filing process due to the reduction of entry barriers created by technology improvements.

Getting expert assistance for secure ITR filing is recommended to minimize risk and hassles.

Digital Transformation

The implementation of innovations like online filing has played a significant role in improving levels of compliance. In the digital era, tax litigation assistance is the key.

Key aspects include:

User-Friendly e-Filing Portal: The Income Tax Department has made significant improvements in the e-filing portal for tax returns. Even individuals who are not familiar with tax procedures can utilize the portal as it offers step-by-step instructions. The filing process has been simplified by improved features like pre-filled forms and automated calculations.

Real-Time Processing: The power of real-time returns has assisted in building taxpayers’ confidence and instilling compliance through timely filing of returns. The feedback given to the taxpayers is instant, which helps eliminate uncertainty. Such quick processing not only benefits taxpayer satisfaction but also provides the government with better revenue management. Meeting tax compliance needs is crucial.

Mobile Applications: Mobile applications have also made the tax filing process easier, especially for the young generation of taxpayers. Some of these applications enable them to file returns, follow status, and acquire pertinent data on the move. Features like chatbots for help have been incorporated, enhancing the users’ experience.

Adherence to Regulations and Reduction in Tax Evasion

The trends of the present year clearly illustrate better compliance and a lower percentage of tax evasion seen in ITR filing. Several factors contribute to this trend:

Data Analytics and Technology: In recent years, the Income Tax Department has also relied on data analytics and technology to believe in possible incidences of tax evasion. Through transaction data analysis and cross-referencing information from many sources, the department can pinpoint non-compliant taxpayers and discover irregularities. The result of this proactive strategy is a stronger enforcement system.

Stringent Penalties: The government has increased the measures it uses to penalize tax evasion, and this is a message for those intending to evade taxes. This factor has helped more taxpayers prepare accurate returns and submit them as and when required since they understand that they will be required to make adjustments once audited or when penalties are issued. The authorities also actively publicize the outcomes of the trials involving prosecution for tax evasion, thus enhancing the perception of intolerance to instances of tax evasion.

Public Awareness Campaigns: To prevent people from pursuing non-compliance, the government has imposed stronger penalties for tax evasion. More individuals are filing their taxes on time and accurately because they are afraid of audits and fines. The idea that tax evasion will not be allowed has been furthered by making successful prosecutions of tax evaders public.

Increased Transparency: The measures taken by the government to enhance the level of transparency of the tax system have also helped to enhance compliance. Measures like the introduction of the Goods and Services Tax (GST) have provided clarity in the taxing structure, making it difficult for people to avoid taxes. Technology’s incorporation into tax administration has improved accountability and transparency even more.

Difficulties in Meeting the Compliance Needs

Despite the positive trends in tax compliance, several challenges remain:

1. Complexity of Tax Regulations

Although the new tax structure has made tax filing easier and less confusing, the general picture of taxation in India is still quite convoluted. Surprisingly, many taxpayers do not grasp the complexity of the tax regulations, contributing to more errors while filing. To guarantee that tax laws are current and understandable to the majority of taxpayers, the government should consider conducting periodic reviews of them.

2. Digital Divide

Although digitalization has benefited the community at large, certain individuals do not have access to certain tools, such as computers or the Internet. It becomes important to ensure that all taxpayers, despite their technological mismatch, can observe the tax laws. This could encompass creating libraries with internet facilities and transporting helpers to enable them to offer face-to-face help to the targeted people.

3. Awareness and Education

While there have been increased improvements in the implementation of financial literacy programs, there is always a need for successive teaching and reminding of the principles to all taxpayers.

 This gap can, however, be closed by launching political advocacy targeted specifically at people who have never filed for bankruptcy before or small business people who seek bankruptcy protection. That is why the opportunity to expand collaborations with educational institutions and community organizations can also add to the outreach activities.

4. Addressing Taxpayer Concerns

One of the biggest challenges that taxpayers face is privacy and data security while using the online filing portal. The government needs to ensure that taxpayers’ information is safe and work to protect them from any potential risks to encourage the filing of online tax returns.

These concerns can be addressed by adopting strong security measures in the computation and storage of data and coming up with regular updates on protection measures for taxpayers.

5. Efficiency in Procedures for Small Business

Small businesses present many compliance issues when paying taxes due to their limited capital and understanding. The government should consider sorting out small businesses’ tax compliance issues by employing specialists to assist those businesses in understanding what they are required to do.

Some of the ways of implementing this could be by offering specific training sessions, easier methods of filing refunds and appealing against the assesses, and other services concerning taxes.

Conclusion

India’s tax compliance environment will reach a major milestone with the record filings of 7.28 crore ITRs by July 31, 2024. As more people file their taxes for the first time, a significant shift towards the new tax system can be projected, with 72% of taxpayers choosing it. It indicates that people are becoming more conscious of and accepting of their tax responsibilities.

These are encouraging trends that should continue as long as the government keeps putting policies in place to streamline tax procedures and improve financial literacy. The spike in filings, which peaked at 69.92 lakh ITRs filed in a single day, demonstrates the urgency and dedication of taxpayers to meet their commitments. The extraordinary activity on the e-filing portal—5.07 lakh ITRs filed in a single hour—highlights the increasing dependence on digital channels for tax compliance.

In summary, record ITR files indicate a promising future for tax compliance in India. By establishing an open and effective tax system, India may realize its full potential for economic growth and development, which will eventually benefit the nation’s residents as well as the government.

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