Idea to get more people into income tax net! - eNidhi India Travel Blog

Idea to get more people into income tax net!

India has a very small portion of citizens filing income tax returns. Within that even a smaller percentage actually have taxable income.

Only 6.77 crore Indians filed income tax return by 31 July, out of 140 crore people. That is less than 5% of Indians. Out of this 4.65 crore people paid zero income tax. Only 2.12 crore Indians paid income tax, which is a negligible 1.5% of Indian citizens

The reasons for poor rate of income tax collection
  • Many people like maid, driver, gardener, security guard, cook, assistant etc earn in cash and never file any return.
  • Farm income is excluded from income tax. SRK’s daughter can buy a farmland, become farmer and skip paying income tax for rest of her life
  • Businessmen show little personal income, buy car, home in their company’s name, show their personal expense as company expense and evade tax
How to improve this?

Money spent as salary to household helps- cook, maid, driver, gardener, babysitter etc to be exempted from income tax up to a certain amount- say 10k per month or 120000 INR per year.

Shopkeepers and businessmen also can be given some incentives over the salary given to their staff, provided staff get a PAN and file returns.

But to be eligible, following conditions should apply
  •  The household help should have a PAN card (get one if not having)
  •  Cash payments do not qualify- money should be transferred online to household help’s bank account.

A family of 2 earning adults can exclude  240000 per year (1.2 lakh each by say husband and wife) from income tax. At 30% savings, they can save 72000 INR per year. The ability to save this much will encourage every middle class family to get the people around them a PAN and bank account.

It will be temporary loss for Govt in reduced tax collection from already tax paying middle class, but in the process they will get more people to have pan and file return. After maybe 10 years the incentives to middle class can be rolled back once more and more people have pan, get used to filing returns.

Once people have a PAN and PAN linked bank account, their earnings will be tracked and if they don’t file ITR, income tax department can follow up and make them file. Out of crores of Indians earning as maid, driver, assistant, gardener, security guard, I am sure a few will have taxable income.

What are your thoughts?


  1. Good idea.. though the purose of GST is kind of similar that you bring everybody into indirect tax next... the only issue is people paying high income tax also pay GST while a lot of people who don't pay Income tax also don't pay GST as they buy everything in cash.. but over the years I think the loopholes will be plugged and in my opinion there will be no need for Income tax for a very large % of population even though they will have a high income and as a society and economy we should aim at easing our tax system rather than making it more taxing ( in more ways than one ) on the common people....


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