ndia’s tax collection system is once again in the spotlight as the Income Tax Department recently informed the Parliamentary Finance Committee that out of ₹43 lakh crore in pending taxes, nearly 67% (₹29 lakh crore) is difficult to recover. This revelation raises serious concerns about the effectiveness of tax collection mechanisms and highlights the growing challenges in India’s fiscal management.

Rising Tax Collection, Yet Recovery Remains a Challenge

For the fiscal year 2024-25, direct tax collection has increased by 13.13%, reaching ₹21.26 lakh crore. Additionally, over 9 crore taxpayers have filed Income Tax Returns (ITR), with 4.68 lakh individuals declaring incomes exceeding ₹1 crore.

However, despite a surge in tax collections, the government is struggling to recover outstanding dues. This raises a crucial question—why is tax recovery so challenging despite rising compliance?

Key Barriers to Tax Recovery

  1. Lengthy Legal Disputes – Many tax cases are stuck in prolonged litigation, delaying recovery.
  2. Bankrupt Companies – Several large firms have shut down, making it nearly impossible to collect their pending dues.
  3. Complex Tax Procedures – The existing system is cumbersome, discouraging voluntary compliance.
  4. Widespread Tax Evasion – Despite an expanding tax base, many individuals and entities continue to evade taxes.

Possible Solutions

  1. Streamlining Tax Administration – Simplifying tax procedures to make compliance easier.
  2. Leveraging Technology – Using Artificial Intelligence (AI) and Data Analytics to detect tax evasion.
  3. Fast-Track Settlement Mechanism – Establishing special tax courts to resolve disputes swiftly.
  4. Limited-Time Amnesty Programs – Offering temporary relief to encourage defaulters to clear pending dues.

Conclusion

India must reform its tax administration to make it more efficient and transparent. If the issue of unrecoverable taxes is not addressed, it could significantly impact the country’s fiscal deficit. The government must take concrete steps to rebuild taxpayer confidence and ensure sustainable revenue collection for a robust economy.

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