Income Tax Collection Grows Alongside Rising Incomes and Profits

India’s Income Tax Collection Surges

In a remarkable fiscal performance, India has witnessed a significant uptick in its income tax collection, with figures for the 2023-24 financial year showing a robust increase of 17.7 percent, amounting to nearly $235 billion. This surge is indicative of the rising incomes of affluent taxpayers and an uptick in corporate profits, painting a picture of economic progress in certain sectors.

The Central Board of Direct Taxes (CBDT) reported that net income tax receipts escalated to 19.58 trillion rupees ($234.9bn), surpassing the previous year’s collection by a substantial margin. Notably, this figure exceeds the government’s initial budget target by 7.4 percent, underscoring the efficiency of tax collection mechanisms in place.

Breaking down the numbers, net personal income tax collections, inclusive of securities transaction tax, soared by a quarter to 10.44 trillion rupees ($125.3bn). Concurrently, corporate tax collections experienced a 10.26 percent rise to 9.11 trillion rupees ($109.3bn), compared to the previous fiscal period.

The number of income tax filers also climbed, reaching nearly 82 million, which is a 9 percent increase from the prior year. This growth is primarily attributed to wealthier individuals and large corporations experiencing enhanced incomes and stock market gains.

Despite these gains, it’s important to note that only a minor fraction of Indian households earn above the tax-exempt threshold. The majority of agricultural income remains untaxed due to the predominance of small-scale farming operations. Moreover, wage growth in small businesses and the agricultural sector, which collectively employ the vast majority of India’s workforce, has been modest amid high unemployment rates among educated youth.

Economists like Arun Kumar highlight that these figures also point towards a widening income inequality gap. According to a World Inequality Lab report cited by Kumar, the richest 1 percent of India’s population now holds over 22 percent of income and 40 percent of wealth, signaling a deepening divide in wealth distribution since the early 2000s.

As India navigates its economic trajectory, the rise in income tax collection reflects both the successes and challenges within its diverse economic landscape.