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Direct tax reforms for better tax compliance

In his December 31 speech, Prime Minister Narendra Modi referred to official Ministry of Finance data saying that there were only 2.4 million individuals who declared incomes above Rs 10 lakh. But this is too small a number for an economy of India given its size and richness. This indicates that there is a significant amount of tax evasion somewhere in territory of Rs 6 lakh crore to Rs 9 lakh crore. According to 2013-14 data, there should be around 10 million taxpayers earning above Rs 10 lakh. The fight against black income was a part of manifesto of the BJP government and has been on its agenda since its government formed t the centre. The Supreme Court had set up a Special Investigation Team (SIT) on black money.

The demonetization drive in the country has equipped the government with requisite courage and this can be applied to the vision of a major reform in direct income taxes. This can be expected from this year s budget given the recent background set by demonetization drive. As the Constitutional Amendment has been passed, the government is working hard to introduce the GST by August 2017. The common consensus is that well-off and rich should pay more in tax. The direct tax reforms must aim at making the country into a moderately tax-compliant economy. The wave created by demonetization should be fully banked on and measures should be taken to complete the process of fighting black money and corruption.

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