Mint Explainer | Why the tax department is tightening compliance now

Subscribe to enjoy similar stories. New Delhi: When presenting the Union budget last February, the government projected a 13% growth in direct tax collections for the current financial year, banking on the strong tax buoyancy seen in preceding years. However, between April and mid-December of this year, collections have grown approximately 8%.

The income tax department is confident of meeting the target for the year. But the moderation in the growth rate is impacting tax administration. The department is now nudging taxpayers to be more honest about the deductions they claim and make accurate reporting.

Undisclosed foreign income is also in focus. Mint examines how the tax administration is tightening compliance following the reduction in tax rates this fiscal year. After the 43% post-pandemic rebound in personal income tax collection in FY22, revenues from individuals’ incomes continued to grow strongly—by 20%, over 25%, and over 20% in the following three years.

Hence, when the government offered an income rebate in the budget for this fiscal year for up to ₹12 lakh (up to ₹12.75 lakh in the case of salaried individuals), it forecast a 14.4% growth in personal income tax collection. It also assumed a 10.4% annual growth in tax receipts from corporations. However, up to mid-December, non-corporate tax collection, mainly personal income tax receipts, grew only 6.4%, while corporate tax receipts increased 10.5%.

Overall, direct tax receipts grew 8% this fiscal year up to mid-December, against the 13% growth estimated. While the gap could be narrowed closer to the end of the financial year, the moderating growth warranted administrative intervention. Historically, deductions claimed by individuals in their tax returns were