ClearTax helps millions in India file tax returns in ‘less than five minutes’

ClearTax is one of those refreshingly simple startups that can be described in less than 140 characters: it files income tax returns in India online. When I mention this to its founder, Archit Gupta, he chuckles and agrees. “It’s a simple solution that is working off of this huge shift that’s happening in India right now,” he explains. “This is the first year that the tax process has become so automated. Paper was once the only option for most taxes, and now there is an entire electronic backend where you can declare everything from your bank account to your passport details. There’s real transparency now.”

The change has been enormous. Last year, less than 3 percent of those living in India were paying their income taxes. Of this number, 90 percent claimed to make between INR 0-500,000 (INR 500,000 is US$7,633) a month and only 1.3 percent claimed INR 2,000,000 (US$30,000) a month. When you look at income statistics, this doesn’t add up. Furthermore, less than 1 percent of those who actually did pay income tax filed for returns. Not only does this mean the middle class is bearing the brunt of most of the income taxes collected in India, it also means even fewer people are getting the tax returns that they deserve.

In the past year, however, the government has aggressively fined those that aren’t paying taxes. In terms of tax returns, their efforts toward digitization have also proved to be fruitful: just this past July, there was a reported 46.8 percent increase in the number of people filing for returns.

Not all is perfect with the new system, however. “Some things get better with accountability while some processes get slower,” explains Archit. “Non-mainstream players like freelancers and small businesses are having a harder time than ever filing for tax returns.” That not-so-little niche, he explains, is where ClearTax finds its footing.

If users have a PDF of Form-16 (the income tax form that employers give to salaried workers) handy, ClearTax will scan through the required fields in order to create a tax return. For those who don’t have the form, the site asks for information like “income sources”, “deductions”, “taxes paid”, and “tax filing” in order to create and help file their income tax return.

ClearTax offers paid plans that allow users with more complicated assets – this means that there’s a chance that they might forget to list stuff and miss a tax deduction somewhere – to hire a personal chartered accountant to help with filling out the form. Chartered accountants are hired from a series of firms across the country. Otherwise, ClearTax is absolutely free. Archit explains that most of ClearTax’s current users are individual consumers.

“The entire point of ClearTax is making India more tax compliant,” he explains. “We don’t only help with filing returns. I mean, you can track the status of where your money’s at and remember important deadlines. It’s an important step toward the future.”

Complications should not get in the way of getting tax returns

ClearTax was conceived in 2011 during a conversation between Archit and his father, Raja Ram Gupta. “My dad is a chartered accountant and a really bright guy,” he reminisces. “I remember him talking about how annoying it was getting for him to file his tax returns. That’s when I thought to myself, ‘If he’s having these types of problems, I can’t imagine what everyone else is going through…’”

The two worked together to create  ClearSharp Technologies, a software that would automate the most difficult parts of getting tax returns. “He approached it as a chartered accountant or a business user while I approached it as a regular consumer,” Archit explains. “Within the first year, with no marketing, we had 1,000 users.”

Despite their initial popularity, Archit’s vision for ClearTax was still unclear. “I knew we felt something forming but we weren’t there yet,” he remembers. During a hackathon conducted at mobile wallet PayTM’s office – coincidentally, PayTM also recently invested in ClearTax – Archit met Srivatsan Chari and Ankit Solanki, the two co-founders that would help him launch his startup as an online platform. “We kept talking and excitement increased,” he explains. “It was a natural shift.”

In 2014, ClearTax became the first startup focused on the Indian market to get funding from Y Combinator. “You can’t even talk about whether tax returns and rules are working until you have transparency and proper statistics,” explains Archit. “Right now we’re just helping people save money where they deserve it.”

This time, the competition is with the government