The government should refrain from frequently raising the tax exemption threshold to avoid erosion in the number of taxpayers and also needs to adopt measures to move towards a cash-less regime, says a report.

The report by the National Institute of Public Finance and Policy (NIPFP) titled 'Analytical Model for Widening of Taxpayers Base' also suggested tax policy incentives should only be given to those who comply with the tax laws like filing of returns.

Arguing for refraining from increasing the exemption threshold too frequently, the report said: "...while every government has the right to decide on the exemption threshold, increases in the exemption threshold tends to erode the tax base in terms of number of taxpayers significantly."

Some countries, it added, even desist from correcting the exemption threshold for inflation on a regular basis.

The report said India continues to be a cash-based economy which undermines compliance with tax laws and made a case for incentivising the move away from cash to other financial instruments.

NIPFP report further said that it has been argued that some of the success from the effort to collect information is defeated by the option of filing forms 60 and 61 (filled by those who do not have either a PAN or GIR).

"It is therefore proposed that the department should do away with these forms and PAN be made mandatory for all income earning individuals in the economy, irrespective of what their source of income is," it added.

On measures to support voluntary compliance, the study proposed "repopulated returns".

"These can be a mechanism of aiding the taxpayers' efforts at return filing by informing the taxpayer of certain details that are already with the department. It can therefore be treated as a service to the tax payer".

In the case of delinquent taxpayers, such services might make the department more visible and hence induce compliance, it said.

Noting that tax departments tend to face a lot of bad publicity for their efforts to bring in the evading taxpayer, the report said it would be useful to address this issue by periodically putting out information on the extent of interface of the tax department with the average tax payer.

Such information could work towards increasing confidence of the taxpayer on the department, it added.

The report also said it is necessary to increase the ambit of third party reporting in India also.

"Considering the fact that CIB (Central Information Branch) has not been effective in increasing the tax base, there is no point in continuing with this experiment.

"However, the information that is collected is very relevant.

Therefore, the proper alternative will be to expand the domain of Annual Information Return," it said.