In a developing country like India, taxation promotes diverse objectives like increasing the rate of domestic savings, reducing inequalities of income and wealth, maintaining price stability and so on. Indian tax structure has gone through many reforms and still it is far ahead from being an ideal structure. The Government should formulate a cohesive tax system to balance the multiple objectives in view of its own requirements and goals. Analysis of direct tax collection and number of assesses indicate positive improvement in this direction and it can be improved further. Problems especially tax evasion, black money and existence of parallel economy invite major reforms of the existing tax structure to address all these problems. This paper has made an attempt to study the present direct tax structure in India, the reforms undertaken, and also to see how effective it has been and to make recommendations to improve the direct tax structure in India.

1. Indian Direct Tax Structure – An Analytical Study
Indian Direct Tax Structure – An Analytical Study
Dr. Pradip Kumar Das
Jagannath Kishore College, Purulia, West Bengal, India
Email Address: pradip57.prl@rediffmail.com Tel No.: +91 9475815209/7362965792
In a developing country like India, taxation promotes diverse objectives like increasing the rate of
domestic savings, reducing inequalities of income and wealth, maintaining price stability and so
on. Indian tax structure has gone through many reforms and still it is far ahead from being an
ideal structure. The Government should formulate a cohesive tax system to balance the multiple
objectives in view of its own requirements and goals. Analysis of direct tax collection and number
of assesses indicate positive improvement in this direction and it can be improved further.
Problems especially tax evasion, black money and existence of parallel economy invite major
reforms of the existing tax structure to address all these problems. This paper has made an
attempt to study the present direct tax structure in India, the reforms undertaken, and also to see
how effective it has been and to make recommendations to improve the direct tax structure in
India.
Keywords: Direct tax, Income-tax, Revenue, National economy, Tax structure, Tax collection
PROLOGUE
Taxation policy is a core of economic policies ensuring
countries ability to maintain and improve its
competitiveness globally. Various types of taxes levied by
the Governments are divided into two broad categories:
direct tax and indirect tax. The most important direct tax
was levied for the first time in 1860 in the form of tax on
income with the purpose of raising revenue for the
Government. With the change in socio-economic and
political situations, especially after independence, direct
taxation has come to acquire an important place in the
fiscal armory of the Government of India and is intended
to achieve a variety of national objectives. The power to
levy taxes is distributed among the three tiers of
Governments in accordance with the provisions of the
Indian Constitution. In the wake of economic reforms, tax
structure in India has undergone radical changes in line
with the liberal policy.
INTRODUCTION
Economic development of any country largely depends on
efficient and rational allocation of resources among
different sectors of the economy. In this context, taxation
plays a crucial role in the sense that resources have to be
mobilized and converted into productive channel of the
Indian economy. Fiscal and balance of payment crises of
1991 assured methodical reform not only to improve the
revenue productivity of the tax system, but also to reorient
the system suitable to the requirements of a market
economy. Since then reforms in the tax structure of both
direct and indirect taxes have been a continuous process.
Direct tax reforms at federal level form key component of
wider reforms in fiscal and economic sector. Like in other
developing countries, tax reforms in India also aim at
correcting fiscal imbalances (Ahmed & Stern,1991).
Objectives behind the reforms are on the one side to
reduce the dependence on foreign trade taxes and orient
the tax structure towards an open economy on sustainable
basis so that the current budget of the Government can be
balanced and eventually yield some surpluses to finance
public investments (Bagchi,1998). The motivating factor is
the desire to maintain and enhance international
competitiveness as more and more developing countries
seek to participate in the process of globalization (Islam,
2001) apart from domestic consumption alone (Reddy,
2002). In this backdrop, this paper intends to highlight the
direct tax structure in India and to see the effectiveness of
its reforms undertaken.
Research Article
Vol. 4(1), pp. 042-051, April, 2020. © www.premierpublishers.org. ISSN: 0799-673X
Journal of Accounting, Auditing and Taxation

2. Indian Direct Tax Structure – An Analytical Study
Das PK. 043
REVIEW OF LITERATURE
Sury (2017) in his book, “Taxation in India” provided an
exhaustive and critical account of the various aspects of
the Indian taxation system. The author has also taken into
account the tax revenues of Central and State
Governments in India and their trends. Gauge, Nishant
and Katdare (2015) in the article, “Indian Tax Structure-An
Analytical Perspective” identified the amount of revenue
collected from different types of taxes and found that the
amount of taxes collected from indirect taxes is nearly
double the amount of taxes collected from direct taxes.
Their study focused more on structural reforms than policy
reforms. Sherline (2016) in the research paper, “Indian Tax
Structure and Relevance of GST” analyzed the basic tax
structure in India and the relevance of GST. This paper
revealed that cascading tax revenues have differential
impact on firm in the economy with relatively high burden
on those not getting full offsets. Pandey (2017) in a study
titled, “The Impact of Indian Taxation System on the
Economic Growth of India” revealed lack of coordination
between the Central Board of Direct Taxes (CBDT) and
the Central Board of Excise and Customs. He suggested
the consolidation of these two departments into one. Mario
(2015) carried out research on “Reviews Trends in
Taxation and Revenue in MENA Countries” with a focus
on non-sources taxes and concluded that income-taxes
(not indirect taxes) have partially compensated for the lost
revenue from trade liberalization while the revenue from
indirect taxes have played an unimportant role as revenue
tool. Belinga, Benedek, deMooij, and Norregaar (2014) in
their study on “Tax Buoyancy in OECD Countries” focused
on estimated short-run and long-run tax buoyancy in these
countries and found that short-run tax buoyancy does not
significantly differ from one in the majority of the countries;
yet, it has increased since the late 1980s so that tax
systems have generally become better automatic
stabilizers. Yousuf and Huq (2013) in their research on
“Elasticity and Buoyancy of Major Tax Categories:
Evidence from Bangladesh and Its Policy Implications”
revealed that estimates of elasticity and buoyancy are
higher for direct taxes followed by sales tax and VAT.
However, custom duties appear to be rigid for which the
overall tax elasticity is relatively low. William and Benjamin
(2011) in their study on “Reforming Taxes and Raising
Revenue: Part of the Fiscal Solution” focused on the
challenges and opportunities that the fiscal problem
creates for raising revenues and reforming taxation. They
concluded that revenue increase is an important
component of any resolution to the fiscal problem facing
by any country. Kumat (2014) in his research paper on
“Taxation Laws of India-Overview and Fiscal Analysis”
focused on the overview of Indian tax system and
challenges ahead and recommended coordinated
consumption tax system stating that improving the
productivity of Indian tax system continues to be a major
challenge in India. Jha (2013) in his research paper on
“Tax Structure in India & its Effect on Corporate and
Individual in India” suggested to reduce dependence on
indirect taxes and to increase direct taxes to compensate
the losses. Magu (2013) studied the impact of direct and
indirect taxes on the economic development of Kenya and
showed inverse relationship between import duty and
economic development, wherein direct relationship
between income-tax and economic development.
Rajeswari and Susai (2014) observed the tax trends and
GDP ratio through a study and discussed on origin and
evolution of income-tax and other taxes. Their study also
observed the tax buoyancy factor and recommended
mobilizing more direct tax revenue instead of indirect tax.
Subrahmanya and Urmi (2017) in their study on the
various components of GDP with special focus on direct
and indirect taxes observed that personal income-tax has
no impact on economic growth while corporate income-tax
has statistically significant impact in the long run.
REFORM IN DIRECT TAX ADMINISTRATION
Direct tax structure in India is complex, inelastic,
inequitable and quite simply unfair (Shirazi & Shah, 1991).
Reforms in India, therefore, should aim at removing the
complexities in the tax structure and formulating a suitable
policy of incentives. While legislative measures bring
necessary changes in direct tax structure, improvement in
tax administration demands autonomy of chief executives
for fulfillment of the organizational goals. Reforms should
be within the taxation system. Administrative dimension
has been in the periphery rather than the centre of tax
reform (Bird, 1989). Weak tax administration causes high
levels of compliance cost. Virtual absence of data at the
central level is a major aspect of weak administration. With
the complexity in tax structure and poor communication,
tax system often acquires the character of negotiated
payments (India, 1993, 2002a, 2002b) affecting
compliance cost. Das-Gupta (2004a, 2004b) showed that
the only estimate of compliance cost in the case of
personal income-tax is as high as 49% of personal income-
tax collections and in the case of corporate tax between
6% and 15% of the tax paid. Another critical element in tax
administration is networking system of information.
Therefore, systems are to be developed to put together
information to quantify the possible tax implications
statutorily for improving tax enforcement.
STATEMENT OF THE PROBLEM
Indian tax structure has gone through many reforms and
still, it is far ahead from being an ideal structure. In India,
a number of committees have been appointed at several
times to examine different aspects of taxation. A simple
reform is, therefore, badly needed on the direct tax front.
Problems like aphorism, tax incidence, complexity,
imbalance in tax system, lack of coordination and built-in-
elasticity, squandering away of resources, administrative
deficiencies and corruption call for major reforms of Indian
taxation system especially direct tax structure in the future
ahead.

3. Indian Direct Tax Structure – An Analytical Study
J. Acc. Aud. Tax. 044
OBJECTIVES
The prime objectives of the study are:
1)to study direct tax structure of India; 2) to identify the
amount of revenue collected from direct taxes; 3) to
identify problems in the existing direct tax structure; 4) to
find ways of taking further steps towards reforms in direct
tax structure in India.
RESEARCH METHODOLOGY
In the ambit of exploratory research strategy, detailed
literature search has been carried out. Literature review
has been performed to get secondary data. Besides
documentary sources like books and journals, various
committees’ reports, area-based sources as well as
government reports collected mainly from Department of
Revenue, Ministry of Finance, budget documents,
economic surveys, time series-based sources like
statistical reports published by governments have also
been consulted. Various statistical tools and techniques
like pie chart, graph and others have been used for the
purpose of the analysis. Data have been rearranged to suit
the purpose of the study. For the purpose of analysis, the
study is confined to the period from 2013-2014 to 2018-
2019.
DIRECT TAX—ITS’ CONCEPT
Direct tax is a mandatory fee imposed upon individuals or
corporations by the Central and the State Governments
overseen by the CBDT in India, a statutory body formed
under the Central Board of Revenue Act,1924 to help build
the economy of the country. If implemented appropriately,
direct tax may serve as an excellent way to prevent
inflation and sustain price levels. Direct tax due to its
progressiveness satisfies the social concept of equity
effectively as compared to indirect tax. In advanced
countries, this tax accounts for a major part of the
aggregate tax revenue. In less developed countries,
however, direct tax has limited scope on account of low
per capita income and a huge gap of inequalities of wealth
and income. With the progress of economy, it is desirable
to raise contribution of direct tax in the Government
revenue. Thus, direct tax must be income elastic in
character.
DIRECT TAX – INDIAN CONTEXT
Direct tax structure–Analysis
Direct tax in India having scheduler feature makes
distinction between different sources of income.
Acceptance of personal income as an important tax base
is based on the premise that an individual’s income reflects
in true sense one’s ability to contribute to the exchequer in
both developed and developing economies. For this, direct
tax has great appeal on personal income. Like many
developed countries in the world, India has also diversified
tax structure with the authority to levy taxes divided
between the Central Government and the State
Governments. Absence of joint occupancy avoids
duplication in tax administration and minimizes tax rivalry
between the central and states, and among states
themselves. Direct taxes are mainly central’s subject
except professional tax and agricultural income-tax while
indirect taxes can be levied both by the Central and the
States. As the constitutional power to collect most of the
direct taxes lie with the Central Government, analysis of
the structure, growth and power of these taxes need
special attention. Central Government collects these taxes
from the states and then these receipts are shared
between the central and the states on the basis of the pre-
determined formula as per recommendations of the
various Finance Commissions constituted from time to
time.
Income-tax
Income-tax has a sanctum in the Indian tax management.
Currently, this tax is one of the Union taxes in which states
have got increasing stake. CBDT is empowered to amend
rules and clarify instructions as and when it deems
necessary. With the plethora of provisions and their
frequent changes, Income-tax Act has become
complicated. Under the Act, corporation is also supposed
to pay this tax on the divisible profits on behalf of its
stockholders. Income-tax is a tax on total income of a
person computed with reference to a previous year in
accordance with the provisions of the Income-tax Act.
Agricultural income-tax
Section 10(1) of the Income-tax Act, 1961 exempts
agricultural income from income-tax. However, net
agricultural income is added to total non-agricultural
income computed as per the Act for the purpose of
determining tax rate on non-agricultural income of
assesses, if non-agricultural income exceeds the minimum
taxable limit and agricultural income exceeds Rs.5000 (i.e.
statutory limit). Due to this addition, tax liability on non-
agricultural portion becomes high as the tax on agricultural
income is deducted subsequently from the total tax liability
on integrated income.
Professional tax
Professional tax has been enacted for the purpose of levy
and collection of tax on professions and employments with
effect from 1.4.1979. A person covered by more than one
entry shall be liable to pay at highest rate specified in any
of the entries applicable. The Act requires every employer
to deduct due tax that would be payable by an employee
at the time of making payment of salary or wage. Failure
to make deduction does not cease liability of the employer.

4. Indian Direct Tax Structure – An Analytical Study
Das PK. 045
Table-1. Direct Tax Collection
F Y 2013-’14 2014-’15 2015-’16 2016-’17 2017-’18 2018-19
Rs. in crore 6,38,596 6,95,792 7,41,945 8,49,713 10,02,037 11,37,685
Source: Union Finance Accounts and Reports of C&AG/Receipt Budget
Table 2. State and U.T. Wise Break-Up of Collection (Rs. in crore)
States/UT FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY2018-19
Andhra Pradesh 32,296.10 29,769.01 34,057.29 36,241.34 42,236.97 46,222.83
Arunachal Pradesh 111.80 17.19 127.72 169.38 190.48 250.57
Assam 4,486.80 3,658.69 3,982.79 4,709.99 5,366.42 6,262.83
Bihar 4,491.60 4,425.75 5,425.54 6,519.42 6,286.33 6,239.45
Jharkhand 3,482.70 1,344.70 3,597.40 4,546.72 5,436.19 6,933.66
Goa 2,100.30 2,820.02 1,600.30 2,248.96 2,501.37 2,459.23
Gujarat 28,783.90 35,912.46 33,964.61 38,808.27 44,866.66 49,021.69
Haryana 16,778.60 12,638.80 16,741.96 20,312.64 25,614.76 29,881.22
Himachal Pradesh 1,622.40 2,042.42 2,085.17 2,458.67 2,461.07 2,419.93
Jammu Kashmir 1,459.10 1,284.22 1,383.96 1,091.08 1,302.60 1,563.43
Karnataka 59,769.80 60,595.22 72,040.94 85,920.98 1,01,187.54 1,19,796.51
Kerala 10,155.60 11,909.69 10,171.03 13,779.42 17,139.32 17,021.16
Madhya Pradesh 13,486.60 14,262.57 12,237.37 15,768.55 17,154.62 19,696.99
Chhattisgarh 3,067.90 1,286.86 2,996.61 3,678.98 4,863.21 5,272.07
Maharashtra 2,29,494.90 2,77,720.11 2,87,005.33 3,14,056.27 3,84,277.53 4,25,390.84
Manipur 79.20 53.31 67.66 128.36 133.84 171.95
Meghalaya 577.30 292.75 701.51 791.71 849.51 1,125.20
Mizoram 17.80 39.79 51.36 111.70 76.27 59.57
Nagaland 35.10 30.36 40.26 160.33 135.39 121.21
Delhi 88,140.40 91,247.90 1,01,664.01 1,08,882.50 1,36,934.88 1,66,405.42
Odisha 9,394.20 9,871.25 7,264.39 9,339.21 10,681.57 13,420.48
Punjab 7,783.60 7,072.98 8,225.04 10,320.01 11,496.25 11,820.17
Rajasthan 11,246.50 13,146.11 13,352.75 20,182.09 19,201.12 21,059.47
Sikkim 205.40 323.88 199.43 261.35 242.46 479.67
Tamil Nadu 42,681.30 44,732.62 50,522.36 60,077.95 67,583.63 74,238.94
Tripura 218.70 138.91 206.23 264.52 296.41 312.49
Uttar Pradesh 25,886.50 27,159.83 24,981.22 29,309.60 23,515.76 27,688.09
Uttarakhand 1,941.90 1,750.63 2,288.42 2,735.68 2,928.24 3,265.20
West Bengal 26,900.70 27,793.48 29,795.17 35,175.89 39,752.04 44,638.70
Telangana New State 439.46 1,955.31 3,452.85 7,035.54 10,860.23
State Sub-total 6,26,696.60 6,83,780.97 7,28,733.34 8,31,504.42 9,81,747.96 11,14,099.20
Andaman Nicobar 52.80 93.37 60.83 68.14 92.86 115.50
Chandigarh 1,874.80 1,922.65 1,773.56 2,077.37 2,490.86 2,730.67
Daman and Diu 158.20 188.63 185.24 226.44 218.04 270.93
Dadar N. Haveli 245.60 290.20 157.68 194.93 224.48 256.65
Puducherry 425.00 385.89 466.95 584.32 726.10 800.02
Lakshadweep 10.30 2.84 14.08 18.58 20.70 19.44
UT Sub-total 2,766.60 2,883.58 2,658.34 3,169.78 3,773.04 4,193.21
C.T.D.S. 9,125.70 9,124.29 10,330.92 15,144.28 17,219.65 19,393.00
Grand Total 6,38,596.90 6,95,788.85 7,41,722.70 8,49,818.48 10,02,740.70 11,37,685.44
Source: Pr. CCA CBDT; Compiled on the basis of state-wise data available with ZAOs.
RESULTS AND DISCUSSION
Interpretation (1) - Table-1 and Table-2 reveal that direct
taxes have gradually increased from Rs.6,38,596 crore in
2013-2014 to Rs.11,37,685 crore in 2018-2019. Analysis
of the country’s tax revenues for the years 2013-14 to
2018-19 shows that Maharashtra leads the tally in tax
revenues having raised direct taxes of Rs. 19,17,944.98
crore followed by Delhi (Rs. 6,93,275.11 crore) and
Karnataka (Rs. 4,99,310.99 crore). The latest data on tax
collection released by the CBDT shows that three states
namely, Maharashtra, Delhi and Karnataka alone
contribute 61% to the country’s total revenue from direct
taxes. With the inclusion of Tamil Nadu and Gujarat to this
list, the share of the top five states rises to 72%. Greater
revenue collection indicates better employment
opportunities and greater ease-of-doing-business in a
state. Thus, states having high revenue collections

5. Indian Direct Tax Structure – An Analytical Study
J. Acc. Aud. Tax. 046
generally contribute large avenues for economic activities
of the country. Large and populous states like Uttar
Pradesh, Bihar, West Bengal, Rajasthan and Madhya
Pradesh are moderately poor. Uttar Pradesh, Bihar and
West Bengal, the three populous states contribute
approximately 3.12%, 0.65% and 4% respectively to
India’s direct tax revenue in the last six years. Poor
collection in these states may be due to the absence of
formal sector employment and corporate type of
organization. Revenue from direct taxes indicates the
strength of the formal sector and concentration of
industries and corporate organizations in the region.
Higher the number of salaried employees in a region,
higher will be the revenue generated from income-tax.
During the last six years, revenue from personal income-
tax was 40.24% of the total revenue collected from direct
taxes showing considerable part of personal income-tax
towards Government’s revenue. High direct tax revenues
in Delhi, Maharashtra and Karnataka are due to
concentration of a large section of salaried persons in
these states. Most of the salaried persons migrated from
other states like Uttar Pradesh, Bihar and West Bengal
contribute maximum to the corporate workforce. Efforts for
growth of direct tax revenue along with the number of
assesses need to be continued so that high revenue can
be used for smooth development of the country. To
buttress this point, the case of Chandigarh, a small Union
Territory may be compared with Uttarakhand, a much
large state. Between 2013-14 and 2018-19, Chandigarh
generated direct tax worth Rs. 12,869.91 crore. In the last
6 years, revenue from personal income-tax was 40.24% of
the total revenue collected from direct taxes in India (Table
3). During the same period, Uttarakhand generated direct
tax revenue to the tune of Rs.14,910.07 crore. This was
just 0.15 % more than Chandigarh, which has emerged as
a major service sector hub in North India and draws human
capital from across the region. Despite its small size,
Chandigarh is able to generate tax revenues
commensurate to Uttarakhand or even Himachal Pradesh.
Wide distribution shows that the five southern states,
Karnataka, Andhra Pradesh, TamilNadu, Telangana and
Kerala contribute 23% to India’s direct tax revenues. In
comparison to this, north India (comprising J&K, Punjab,
Haryana, Delhi, Uttarakhand, Himachal Pradesh and Uttar
Pradesh) contributes 21.30% to direct tax revenues. But
this wealth is not uniformly shared as Delhi alone makes
up 64.22% of north India’s direct tax revenues. Among all
regions, west India (Maharashtra, Rajasthan, Gujarat and
Goa) contributes 44.63% of the national collection. About
85% of this comes from Maharashtra. Disparity in
prosperity among states becomes high when eastern
states like Bihar, West Bengal, Odisha and Jharkhand
collectively contribute 6.37% to India’s direct tax revenue.
With the addition of the eight Northeastern states,
contribution rises to 7.12%. However, lack of industries
and absence of service sector in Northeast region
declared as scheduled areas enjoy exemption from
income-tax resulting in less revenue from corporate tax.
Table 3. Contribution of Direct Taxes to Total Tax
Revenue
Financial
Year
Direct
Taxes
(Rs. crore)
Indirect
Taxes
(Rs. crore)
Total
Taxes
(Rs. crore)
Direct Tax
as % of
Total
Taxes
2013-14 6,38,596 4,95,347 11,33,943 56.32%
2014-15 6,95,792 5,43,215 12,39,007 56.16%
2015-16 7,41,945 7,11,885 14,54,180 51.03%
2016-17 8,49,713 8,61,515 17,11,228 49.65%
2017-18 10,02,037 9,15,256 19,18,210 52.24%
2018-19 11,37,685 9,39,018 20,76,703 54.78%
Source: Union Finance Accounts and Reports of
C&AG/Receipt Budget
Figure 1: Direct Tax to Total Tax (%)
Interpretation (2): Table 3 depicts the share of direct and
indirect taxes in total tax revenue. Tax collection data for
the last 6 years show that the share of direct taxes in the
Government’s total tax revenue has been decreasing
regularly except for the years 2017-18 and 2018-19 when
it shows increase. In 2016-17, the share sharply
decreases. In 2013-14, direct taxes contribute only
56.32% to total taxes and the remaining revenue come
from indirect taxes. However, by 2018-19, the share of
direct taxes has decreased to 54.78%. Since 2013-14,
direct taxes have contributed more than 50% to the
Government’s total earnings with the exception of 2016-17
when share of direct taxes is 49.65% (Figure 1). More
share shows positive sign of growth and development of a
country like India. In the coming decade, India may
proclaim herself into the league of $5 trillion economy but
the signs emerging from the states do not indicate that the
flagrant income disparity would be overcome by 2024-25,
as set by the Prime Minister of India. The task is not just to
reach $5 trillion, but also to find ways to ensure economic
prosperity. An economy with widened direct taxes
experiences modernization, diversification and expansion
of corporate sector.

6. Indian Direct Tax Structure – An Analytical Study
Das PK. 047
Table-4. Direct-Tax GDP Ratio
Financial
year
Net Collection of Direct
Taxes (Rs. in crore)
GDP Current Market
Price (Rs. in crore)
Direct Tax
GDP Ratio
GDP Growth
Rate
Direct Tax Growth
Rate
Buoyancy
Factor
2013-14 6,38,596 1,13,55,073 5.62% 12.25% 14.24% 1.16
2014-15 6,95,792 1,25,41,208 5.55% 10.45% 8.96% 0.86
2015-16 7,41,945 1,35,67,192 5.47% 8.25% 6.63% 0.80
2016-17 8,49,713 1,53,62,386 5.53% 13.23% 14.53% 1.10
2017-18 10,02,037 1,70,95,005 5.86% 11.28% 17.93% 1.59
2018-19 11,37,685 1,90,10,164 5.98% 11.20% 13.54% 1.21
Source: Union Finance Accounts and reports of C&AG/Receipt Budget
Figure 2: Tax Growth Rate(Series1); GDP Growth
Rate(Series 2) & Direct Tax GDP Ratio(Series3)
Interpretation (3) - Tax–GDP ratio is an important
parameter to observe the trend in taxation in an economy.
Therefore, the present study has taken Tax–GDP ratio for
analysis of changes in revenue of the Government of India.
Table 4 shows that both net collection of direct taxes and
gross domestic product (GDP) has increased every year.
In 2013-2014, contribution of direct taxes is Rs.6,38,596
crores which is 5.62% of GDP of Rs.1,13,55,073 crores. In
the first three years Direct Tax GDP ratio has decreased
but in the next three years the same has started
increasing. Further study shows that both direct tax growth
rate and GDP growth rate have decreased in 2014-15,
2015-16 and 2018-19 and in 2016-17, both has increased.
Again in 2017-18, GDP has decreased but direct tax has
increased. The net effect of Direct Tax GDP ratios is
5.55%, 5.47%,5.53%,5.86% and 5.98% in 2014-15,2015-
16,2016-17,2017-18 and 2018-19 respectively (Figure 2)
indicating significant impact of collection of direct taxes on
GDP. Buoyancy factor also indicates the same. This trend
is expected to continue in future also. Direct taxation is still
in an infant state both in weight and structure (Bernardi et
al.,2005). Hence, it necessitates to find ways to improve
direct tax collections so that Tax-GDP ratio rises and
objective of reining huge fiscal deficit and public debt is
met.
Table 5. Cost of Collection
Financial Year 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Total Collections
(Rs. crore)
6,38,596 6,95,792 7,41,945 8,49,713 10,02,037 11,37,685
Total Expenditure
(Rs. crore)
3,641 4,101 4,593 5,578 6,087 7,074
Cost of Collection 0.57% 0.59% 0.61% 0.66% 0.61% 0.62%
Source: Union Finance Accounts and reports of C&AG/Receipt Budget
Figure 3: Cost of Collection(%) from 2013-14 to 2018-19
Interpretation (4) - From Table 5 & Figure 3, it could be
seen that the Government is spending huge amount for
collection and such amount goes on increasing from year
to year. Cost of collection has increased every year except
in the year 2017-2018(0.61%).

7. Indian Direct Tax Structure – An Analytical Study
J. Acc. Aud. Tax. 048
Table 6. Number of Income-Tax Returns Filed Including Revised Return)
PAN Category FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
AOP 1,01,266 1,06,828 1,47,665 1,62,490 2,07,247 2,05,333
BOI 4,282 4,176 5,556 5,556 6,981 6,537
COMPANY 7,15,005 7,53,508 7,80,470 8,03,990 9,42,834 9,64,862
FIRM 9,60,640 9,92,134 11,10,762 11,81,369 13,93,792 14,09,744
GOVERNMENT 10 35 75 108 239 349
HUF 9,55,457 9,66,500 10,42,522 11,63,543 12,88,544 12,14,410
AJP 8,653 8,784 10,382 10,899 11,455 10,673
LOCAL AUTHORITY 2,815 2,631 3,394 3,483 3,959 3,746
INDIVIDUAL 3,50,43,126 3,74,08,937 4,29,25,794 5,22,05,021 6,45,58,970 6,32,50,002
AOP(TRUST) 1,83,712 1,88,157 2,75,810 2,64,519 2,92,047 2,92,173
TOTAL 3,79,74,966 4,04,31,690 4,63,02,430 5,58,00,978 6,87,06,068 6,73,57,829
Abbreviation: AOP: Association of Persons; BOI: Body of Individuals; HUF: Hindu Undivided Family; AJP: Artificial
Juridical Person
Source: Administrative Hand Book, Directorate of Research and Publications, Income-tax Department, Government of
India, 2019.
Interpretation (5)- In 2017-18 and earlier years, returns of
two assessment years (current assessment year plus
belated returns of previous assessment year) could be
filed. However, due to change in law, returns of only the
current assessment years can be filed from 2018-19
onwards. Hence, the marginal decline in returns filed is
observed in 2018-19 (Table-6). Table also shows that the
number of income-tax returns filed including belated
returns has increased from 3,79,74,966 in 2013-14 to
6,73,57,829 (about 77.37%) in 2018-19.
Table 7. Number of Persons Filing Income-Tax Return (Return Filers)
PAN Category FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
AOP 84,925 88,432 1,06,573 1,22,466 1,55,129 1,77,499
BOI 3,672 3,586 4,205 4,257 5,327 5,771
COMPANY 6,36,023 6,70,900 6,92,696 7,15,200 7,99,687 8,47,860
FIRM 8,81,059 9,02,948 9,83,984 10,60,323 12,08,349 13,18,828
GOVERNMENT 10 26 41 68 157 273
HUF 8,73,754 8,91,801 9,40,830 10,07,753 11,14,038 11,66,432
AJP 7,377 7,132 7,784 8,479 9,135 9,430
LOCAL AUTHORITY 2,267 2,221 2,465 2,578 2,954 3,102
INDIVIDUAL 3,04,97,487 3,23,72,285 3,61,38,618 4,15,93,816 5,09,89,970 5,95,44,767
AOP(TRUST) 1,60,585 1,62,854 1,79,586 1,91,969 2,23,251 2,44,624
TOTAL 3,31,47,159 3,51,02,185 3,90,56,782 4,47,06,909 5,45,07,997 6,33,18,586
Source: Administrative Hand Book, Directorate of Research and Publications, Income Tax Department, Government of
India, 2019
Interpretation (6)-Table-7 shows that the number of
return filers has increased from 3,31,47,159 in 2013-14 to
6,33,18,586 in 2018-19 (about 91%) indicating positive
sign of economic growth.
Table 8. Number of Taxpayers
Taxpayer Category AY 2013-14 AY2014-15 AY 2015-16 AY 2016-17 AY 2017-18 AY 2018-19
AOP 1,41,212 1,59,640 1,80,321 2,05,725 2,25,599 2,56,689
BOI 6,141 6,986 7,433 8,650 9,246 10,418
COMPANY 7,02,828 7,46,800 7,68,206 8,10,617 8,37,597 8,86,889
FIRM 10,35,688 10,83,515 11,56,136 12,50,519 13,12,488 14,25,375
GOVERNMENT 183 334 485 747 1,308 2,556
HUF 9,60,004 9,99,401 10,55,205 11,19,899 11,35,677 11,87,180
AJP 10,211 10,556 11,098 11,702 11,506 12,106
LOCAL AUTHORITY 5,916 7,118 7,533 8,358 9,096 10,185
INDIVIDUAL 4,95,76,555 5,38,05,146 5,79,70,144 6,55,55,912 7,04,45,510 8,04,45,511
AOP(TRUST) 2,05,758 2,17,092 2,31,781 2,53,070 2,61,531 2,84,578
Total 5,26,44,496 5,70,36,588 6,13,88,342 6,92,25,199 7,42,49,558 8,45,21,487
Source: Administrative Hand Book, Directorate of Research and Publications, Income Tax Department, Government of
India, 2019

8. Indian Direct Tax Structure – An Analytical Study
Das PK. 049
Interpretation (7) - Looking at the trend of number of
taxpayers i.e. assesses, it is seen that in 2013-14, the
number of effective assesses is 5,26,44,496. By 2018-19,
it grew up to 8,45,21,487(60.55%). Thus, there is an
increase in the number of assesses over the last six years.
Table 8 shows the number of effective assesses during the
period 2013-14 to 2018-19.
SHORTCOMINGS IN THE DIRECT TAX SYSTEM IN
INDIA
Indian personal income-tax is plagued by a number of
deficiencies like low yield, extremely limited coverage, low
level of compliance and so on. Maximum unorganized
sector is outside the purview of tax net. Consequently,
revenue from direct tax in India comes virtually from the
salaried class and the organized sector of the economy.
Contribution of direct tax to the total revenue of the Union
Government is yet to improve. There is massive tax
evasion and avoidance. High marginal rates prevailing
over a long time contribute much towards poor
compliance. One of the ramifications of higher marginal tax
rates is that income-tax in India is full of exemptions,
allowances and deductions. Tax evaders get incentives
from such cumbersome rules and procedures. For these,
income-tax gradually assumes a nomenclature among
taxpayers as voluntary tax.
FURTHER STUDY
This study has attempted to suggest ways and
recommendations to bring improvement in direct tax
through reform in tax structure and tax administration.
Future research can be conducted by studying both direct
and indirect taxes contribution from all other sectors such
as industry, services and agriculture towards GDP.
CONCLUSION
Enactment of Direct Tax Code is a welcome step to
simplify tax procedures by removing unnecessary
distortions, allowances, exemptions etc. In a country like
India where poverty level is high and overall direct
participation in the formal economy is low, a strong and
powerful message is to be communicated about the virtues
of the community’s tax obligations. Time has come to
enact new Income-tax Act incorporating the principle that
a good tax system is featured by simplicity, fairness and
neutrality in the distribution of resources. Need is to
improve the built-in revenue raising capacity of the tax
system so that it becomes growth elastic and gets in line
with tax system of other growing and developed countries.
Keeping the tax structure simple within the administrative
capacity of the Government is an international lesson.
Transition to information-based tax administration is the
most desirable. Albert Einstein once remarked, “The
hardest thing in the world to understand is income
tax”. It is debatable whether fundamental change in the
basic approach towards taxing income has ever taken
place in India despite appointment of committees and
commissions and the official claim of the Government at
the centre, at times, about their policies being pro-people
progressive and sometimes having slope in favor of
socialist ideals. Many tax payers’ resorting to illegal
activities to save tax are not part of tax planning process
rather part of tax evasion which is always
disparaging. One can go ahead with legal ways of saving
income-tax and find out the pointers which are of
advantage looking to the facts and
circumstances. Frequent changes in tax structure must be
avoided since they are sources of uncertainties and create
difficulties for effective tax administration that ultimately
results into loss of revenue and crops up problems. But
changes take place manifesting the desire of the
Government to broaden the net, to respond to some
popular demands about rebates and reliefs, to provide
incentives for development, to plug loopholes giving scope
for evasions and the like. The practitioners, the taxpayers
and above all the learners of the subject have to face these
changes in an already cumbrous Act.
RECOMMENDATIONS
1. The Government should focus more on structural
reforms than policy reforms.
2. Administrative expenses for tax collection can be
brought down by reducing the number of taxes and tax
collection authorities.
3. There must be an appropriate balance between tax
liability at the lowest levels, administrative cost of
collection and compliance burden of the smallest
taxpayers.
4. Number of tax slabs should be few and their ranges
fairly large to minimize distortions arising out of
bracket creep. The basic exemption limit must be at
moderate level.
5. Maximum marginal tax rate should be moderate to
minimize distortions in the economic behavior of tax
payers.
6. Pertinent task before tax administration is to design an
equitable and efficient personal income-tax rate
schedule.
7. Recommendations of the various committees need to
be implemented promptly looking to the fact that there
is huge revenue loss on this account.
8. The CBDT should have exclusive power for designing
the enforcement strategy. The control of the Central
Government can be exercised through Memorandum
of Understanding (MOU).
9. Heavy prosecution measures may be taken against
tax evaders as it would serve not only as deterrence
to dishonest taxpayers but also a sort of reward to
honest taxpayers in a way that while dishonest
taxpayers are punished, honest taxpayers are
recognized.

9. Indian Direct Tax Structure – An Analytical Study
J. Acc. Aud. Tax. 050
10. The Government should come out to provide basic
facilities and remove dissatisfaction about poor
working conditions among the tax officials so that they
get incentive to work for the desired goals and their
morale remains high.
11. Taxation of agricultural income should be taken out of
the state list through constitutional amendment and an
integrated system of taxation of agricultural with non-
agricultural income must be introduced since non-levy
of tax on agricultural income distorts both horizontal
and vertical equity and encourages laundering of non-
agricultural income as agricultural income.
12. Tax administration should meet the challenges of
convincing taxpayers that tax administration and its
representatives act in accordance with the law.
13. As all principles cannot be of universal application,
variations in economic and fiscal conditions to Indian
conditions should receive due consideration in
formulating tax system.
14. Any step towards a sound system should encourage
voluntary compliance and discourage harassment of
honest taxpayers while dealing with tax evaders.
15. Innovative methods need to be applied treating the
taxpayer as customer or client through changing the
traditional role perception of tax administration.
16. Reforms in taxation in India are to be pursued more
vigorously and sensibly keeping in view the need for
integration of Indian economy with the rest of the
world.
17. The Government should make effective plan for
setting up service sector and industry so that migration
of labor from one state/region to another is decreased.
18. Since various tax incentives and allowances invite
scope for tax evasion and avoidance, the Government
should be more restrictive while sanctioning these
facilities.
CONFLICT OF INTEREST: None
ACKNOWLEDGEMENT: The paper is devoted to
ALMIGHTY GOD who bestows HIS blessings in all walks
of my life.
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Accepted 9 April 2020
Citation: Das PK (2020). Indian Direct Tax Structure – An
Analytical Study. Journal of Accounting, Auditing and
Taxation, 4(1): 042-051.
Copyright: © 2020 Das PK. This is an open-access article
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