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What demonetisation did to tax collections
Context
Effect of Demonetisation
Demonetisation’s effect on tax collections
- Net collections have increased by 17.1% in the just concluded fiscal year, to Rs. 9.95 lakh crore. In FY15 and FY16, India’s direct tax kitty witnessed growth of just 8.9% and 6.9%. But seen from a historical perspective, a 14% or even 17% annual increase in direct taxes isn’t extraordinary for the Indian economy.
- For instance, in fiscal year FY14 (under the UPA government), direct tax collections rose 14.3%. In FY11, they had expanded 18%. Clearly, these numbers were achieved without any tinkering with high-value currency notes
- Tax buoyancy: Tax buoyancy has picked up post-demonetisation. In the seven years from FY08 to FY14, direct tax buoyancy hovered between 0.5 and 1.1 times, averaging out at 1 for the period. Direct tax buoyancy doubled from 0.6 times in FY16 to 1.3 times in FY17 and accelerated further to 1.7 times in FY18
- The number of IT return filings zoomed to 6.84 crore by the end of FY18. That’s a 57% increase in the last two years (2.48 crore new filings)
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