What Happened
- India's income tax return filers doubled from 5.26 crore in 2013-14 to 12.13 crore in 2024-25, registering a CAGR of 7.9% over 11 years.
- The Finance Minister stated during the Budget debate in the Rajya Sabha that rising personal income tax collections reflect growing incomes and expansion of the middle class, not suppression.
- The government attributed the widening tax base to voluntary compliance driven by formalisation of the economy, digital tax infrastructure, and simplified filing processes.
- The zero tax liability up to Rs 12 lakh under the new income tax regime (announced in Union Budget 2025-26) was cited as further evidence of middle-class support.
Static Topic Bridges
Direct Tax-GDP Ratio and Tax Buoyancy
The direct tax-GDP ratio measures the share of direct taxes (income tax + corporate tax) in the country's GDP. A rising ratio indicates that income growth is being captured into the formal tax net. Tax buoyancy measures the responsiveness of tax revenue to changes in GDP -- a buoyancy greater than 1 means tax collections are growing faster than GDP, indicating either expanding base or improved compliance or both.
- Direct tax-GDP ratio in India reached 6.64% in 2023-24 -- a 24-year high
- Tax buoyancy in 2023-24: 1.86 (down from 2.54 in 2021-22 but above 1, indicating healthy growth)
- Personal income tax collections overtook corporate tax in FY2020-21 for the first time
- Number of crorepati taxpayers (income above Rs 1 crore) increased 5 times in 10 years to 2.2 lakh
- India's overall tax-GDP ratio remains below OECD average (~33%) due to large informal economy and narrow tax base
Connection to this news: The doubling of the taxpayer base to 12 crore is a key driver of the rising direct tax-GDP ratio, reflecting both economic formalisation and improved tax administration rather than higher tax rates.
Formalisation of the Indian Economy
Formalisation refers to the shift of economic activity from unregistered/unregulated sectors to registered/regulated ones, bringing more workers and enterprises into the tax net, banking system, and social security framework. Key drivers include GST (2017), digital payments (UPI), Aadhaar-linked identity infrastructure, and Direct Benefit Transfer (DBT). Formalisation improves tax compliance, reduces leakages, and expands the fiscal base.
- GST implementation (July 2017) brought lakhs of previously unregistered businesses into the indirect tax system
- GSTN registrations crossed 1.4 crore, many being first-time tax payers
- UPI transaction volume: over 16 billion per month (as of 2025), creating digital trails that support tax compliance
- Aadhaar-PAN linkage made mandatory (Section 139AA of the Income Tax Act), enabling de-duplication and detection of non-filers
- e-Assessment scheme launched in 2019 (now "faceless assessment") eliminated physical interface with tax officers
- Pre-filled income tax returns using data from TDS, AIS (Annual Information Statement), and SFT reduce non-compliance
Connection to this news: The near-doubling of the taxpayer base over 11 years is substantially driven by formalisation mechanisms -- digital payment trails, GST cross-referencing, Aadhaar-PAN linkage, and simplified e-filing -- rather than merely economic growth, representing a structural transformation of the tax system.
New Income Tax Regime vs Old Regime
The Union Budget 2020-21 introduced an optional new income tax regime with lower tax rates but without most exemptions and deductions. It was made the default regime from FY2023-24 (Budget 2023-24). The Budget 2025-26 further enhanced it by making income up to Rs 12 lakh effectively tax-free (up to Rs 12.75 lakh for salaried individuals including standard deduction), through a combination of revised slabs and a rebate under Section 87A.
- New regime: lower rates (0%, 5%, 10%, 15%, 20%, 25%, 30%) across expanded slabs; no deductions under 80C, 80D, HRA, etc.
- Old regime: higher rates but allows deductions (80C up to Rs 1.5 lakh, 80D medical insurance, HRA, LTA)
- Section 87A rebate: full tax rebate for income up to Rs 12 lakh under new regime (Budget 2025-26)
- Standard deduction: Rs 75,000 for salaried taxpayers under new regime
- Objective: simplify compliance, reduce litigation, widen base by encouraging voluntary filing
Connection to this news: The enhanced zero-tax threshold under the new regime is positioned as a measure that benefits the expanding middle class while maintaining a broadening tax base, with the government arguing that widening the base (not higher rates) is driving revenue growth.
Key Facts & Data
- Taxpayer base (2013-14): 5.26 crore; (2024-25): 12.13 crore (CAGR: 7.9%)
- Direct tax-GDP ratio (2023-24): 6.64% (24-year high)
- Crorepati taxpayers: 2.2 lakh (up 5x in 10 years)
- Zero tax threshold under new regime: Rs 12 lakh (Rs 12.75 lakh for salaried)
- GST registrations: over 1.4 crore
- Tax buoyancy (2023-24): 1.86
- Personal income tax surpassed corporate tax collections from FY2020-21