A parliamentary standing committee has expressed strong dissatisfaction with the Income Tax Department’s refusal to provide segregated data for business income and individual income under personal income tax (PIT). The committee has reiterated its demand for a detailed action plan, including specific milestones and timelines, to bifurcate this crucial tax data.
The issue stems from the current classification wherein PIT encompasses not only individual earnings but also a significant portion of non-corporate business income, estimated at around ₹1.5 lakh crore. The committee believes this commingling of data distorts the true picture of income patterns in the country and hinders effective policy formulation.
In its earlier report, the committee had highlighted concerns raised from various quarters about PIT collections surpassing corporation tax, arguing that this might not accurately reflect the economic reality.
“During the deliberations of the committee with the department, it emerged that at present, PIT also includes about ₹1.5 lakh crore of business (non-corporate) income apart from individual income. The committee observed that there have been instances when concerns have been raised that the collection of personal income tax 5 (PIT) has surpassed corporation tax, as PIT may not accurately reflect the true picture. The committee believes that, ideally, there should be separate data for business income and individual income for better analysis and understanding of income patterns. This would also help in formulating targeted tax policies, identifying areas where tax evasion might be occurring, and addressing the peculiar needs and challenges of individuals and businesses separately. The committee, therefore, recommends that ways and means be explored to segregate the data of PIT as early as possible,” the committee had said.
‘Not feasible’
However, the Ministry of Finance (Department of Revenue), in its action taken reply, maintained that direct taxes are broadly classified into corporate income tax (CIT) for companies and personal income tax (PIT) for other entities like individuals, HUFs, firms, among others.
While acknowledging that taxpayers file different ITR forms (ITR-1, ITR-2 for individuals with no business income; ITR-3, ITR-4 for individuals with business income; and ITR-5 for other non-corporate entities), the Ministry stated that “head-wise segregation of income-tax (e.g., business and profession, capital gain, salary, house property, other sources) is not feasible as income tax return forms are not structured to collect tax details head-wise.”
This response has been deemed “less than satisfactory” by the parliamentary committee.
“The committee finds the reply of the Ministry regarding the disaggregation of income data to be less than satisfactory, as it does not adequately address the fundamental intent behind the recommendation. This disaggregation is vital for a clearer understanding of income patterns across individuals and non-corporate businesses,” stated the committee.
“While the objective was not to prescribe a specific methodology, it is essential to leverage available digital systems and structured data for generating more meaningful classifications. Given that all income tax data is now computerised, the committee believes that there exists significant scope to analyse and generate reports that reflect a comprehensive picture of income sources. The committee reiterates its recommendation and desires the Ministry to sincerely explore avenues and mechanisms to segregate PIT data. The committee expects the Ministry to furnish a detailed action plan, including specific milestones and a timeline for implementation in the action taken statement,” the Committee said.
