Why in the News?

India’s direct tax system has recorded sustained expansion in both individual and non-individual taxpayers. India’s taxpayer base has more than doubled over the last decade, with individual taxpayers rising from 3.26 crore in AY2013-14 to nearly 7.26 crore in AY2024-25, while the total base expanded to about 4.8 crore. Simultaneously, the cost of collecting direct taxes declined to 0.41% in FY2024-25 (provisional), the lowest in available data.The increase reflects administrative reforms, digitalisation of filing systems, and structural strengthening of compliance mechanisms.

What is the scale of expansion in the taxpayer base?

1. Individual taxpayers: Increased from 3.26 crore (AY2013-14) to nearly 7.26 crore (AY2024-25), more than doubling in a decade.
2. Total taxpayer base: Expanded from about 2.9 crore in AY2013-14 to nearly 4.8 crore in AY2024-25.
3. Growth rate: Registered a CAGR of approximately 5% over the period.
4. Peak annual growth: 7.89% CAGR observed during the period.
5. Pandemic disruption: Growth slowed sharply in FY2020-21 due to COVID-19-related economic disruption.
6. Recovery phase: Growth rebounded in subsequent years, indicating durability of expansion.

How has the composition of taxpayers evolved?

1. Dominance of individuals: Individual taxpayers continue to dominate the system.
2. Non-individual taxpayers: Includes firms, companies, LLPs, Association of Persons (AOPs), Body of Individuals (BOIs), local authorities, and artificial juridical persons.
3. Steady growth in non-individuals: Growth remained more stable compared to individuals, without major pandemic volatility.
4. Broader base expansion: Evidence suggests increasing formalisation across business entities.

What institutional changes supported this expansion?

1. Digital filing systems: Increased reliance on online return filing.
2. Pre-filled returns: Reduced compliance burden and errors.
3. Expanded third-party reporting: Strengthened information matching.
4. Reduced face-to-face interactions: Enhanced transparency and minimised discretion.
5. Compliance friction reduction: Enabled smoother onboarding of taxpayers.
6. Administrative strengthening: Indicated by consistent year-on-year improvements.

What does the cost of collection indicate?

1. Declining cost of collection: Reduced from 0.61% of gross direct tax collections (FY2000-01) to 0.41% (FY2024-25 provisional).
2. Lowest in available data series: Reflects sustained administrative efficiency.
3. Pandemic spike: Temporary rise in FY2020-21 due to disruptions.
4. Post-pandemic correction: Returned to declining trajectory.
5. Efficiency gain: Indicates improved revenue mobilisation per rupee spent.

What does this imply for fiscal capacity and governance?

1. Structural strengthening: Evidence suggests durable expansion, not a one-time compliance surge.
2. Formalisation of economy: Broader cross-section of taxpayers entering formal net.
3. Revenue resilience: Supports fiscal planning and long-term budgeting.
4. Administrative modernisation: Reflects digital governance success.
5. Compliance culture: Indicates deeper tax participation.

Conclusion

The sustained expansion of the taxpayer base alongside declining cost of collection signals structural strengthening of India’s direct tax system. The evidence suggests institutional reform, digitalisation, and broader formalisation have enhanced fiscal resilience and administrative efficiency.

PYQ Relevance

[UPSC 2019] Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

Linkage: This question tests understanding of how tax reforms expand the revenue base and strengthen fiscal capacity, a core GS3 theme. The article shows how widening the taxpayer base and improving compliance are part of the same structural shift that GST triggered in India’s tax ecosystem.

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