India Doubles Direct Tax Collection in 5 Years with Tech-Driven Reforms
- India’s gross direct tax collections more than doubled from Rs 12.31 lakh crore in FY 2020-21 to Rs 27.02 lakh crore in FY 2024-25.
- Income Tax Return filings rose by 36%, reaching 9.19 crore in FY 2024-25, driven by increased compliance.
- Digital initiatives like PAN-Aadhaar linking, Faceless Assessments, AIS, TIN 2.0, and Project Insight transformed the tax ecosystem.
India’s total gross direct tax collections have more than doubled over the past five years, underlining the country’s robust economic momentum and the Income Tax Department’s success in expanding the tax base through technology-enabled compliance initiatives.
According to data released by the Ministry of Finance, the country’s gross direct tax collections surged from Rs 12.31 lakh crore in FY 2020-21 to an impressive Rs 27.02 lakh crore in FY 2024-25. This remarkable rise highlights both the resilience of the Indian economy and a transformational improvement in tax compliance systems.
The increase has been supported by a sharp 36 percent rise in the number of Income Tax Returns (ITRs) filed during the same period. Around 9.19 crore ITRs were submitted in FY 2024-25, compared to 6.72 crore in FY 2020-21. Officials attribute this surge to a wider taxpayer base and greater trust in the simplified, technology-driven filing process.
The gross collection figures over the past five years reflect consistent growth: Rs 16.34 lakh crore in 2021-22, Rs 19.72 lakh crore in 2022-23, and Rs 23.38 lakh crore in 2023-24. The growth trend has been attributed to economic recovery post-pandemic, enhanced digital infrastructure, and better enforcement tools.
The transformation of India’s tax ecosystem is rooted in its systematic shift to digital technologies. The 10-digit alphanumeric PAN system, introduced in 1995, laid the foundation for taxpayer tracking and unique identification. The subsequent linking of PAN with Aadhaar in 2017 played a significant role in eliminating duplicate identities and enhancing compliance.
Modernisation of the tax administration picked up pace with the establishment of the Centralised Processing Centre (CPC) in 2009 for efficient return processing and the TRACES system in 2012 to reconcile Tax Deducted at Source (TDS). These developments automated a large part of tax administration and accelerated refund processing.
The launch of TIN 2.0, a next-generation tax payment platform, brought multiple digital payment modes and real-time credit of taxes into the system, thereby streamlining the process for taxpayers and officials alike.
The Demand Facilitation Centre at Mysuru, set up to act as a centralised repository of outstanding demands, serves as a single reference point for taxpayers and departmental officers, ensuring quicker resolution and better transparency.
A landmark initiative in data intelligence was the launch of Project Insight, which integrates a vast data repository to build a 360-degree financial profile of taxpayers. This platform, based on data analytics and artificial intelligence, enables the Income Tax Department to detect mismatches and under-reporting efficiently.
Adding further to transparency and ease of compliance, the Faceless Assessment Scheme was launched in 2019. The scheme eliminates physical interface between taxpayers and officers, ensuring objective assessments through automated random allocation and electronic communication.
In November 2021, the Annual Information Statement (AIS) was rolled out via the Compliance Portal. The AIS consolidates data on a taxpayer’s financial transactions throughout the year, including TDS, TCS, stock trades, mutual fund investments, and more. This data is also used to auto-populate pre-filled returns, simplifying the filing process for individuals.
To encourage voluntary compliance, the government introduced the concept of NUDGE Non-Intrusive Usage of Data to Guide and Enable taxpayers. Based on behavioural insights, it provides gentle reminders and suggestions that encourage taxpayers to fulfill their responsibilities without legal coercion.
Furthermore, Section 139(8A), inserted through the Finance Act, 2022, now permits taxpayers to file updated returns within 24 months from the end of the relevant assessment year, giving them a chance to correct any omissions or errors voluntarily.
Together, these technological innovations, behavioural strategies, and legal reforms have significantly strengthened India’s tax infrastructure, resulting in a more inclusive, transparent, and responsive tax system. As the government continues to modernize its approach, the growth trajectory in direct tax collections is expected to continue.
