Direct Tax Collections Exhibit Robust Growth
India’s direct tax revenue has shown a remarkable increase, as the latest figures up to March 17 reveal. The net direct tax collection stands at ₹18.9-lakh crore, marking a significant 20 per cent rise from the ₹15.77-lakh crore collected in the corresponding period of the previous fiscal year. This surge in direct tax revenue is a result of strategic fiscal measures and enhanced compliance efforts by taxpayers.
The growth in direct taxes is particularly noteworthy against the backdrop of a sluggish performance in indirect taxes. The revised estimate for FY24 points to a 4 per cent decline in excise duty collection and a modest 2 per cent increase in custom duties. Despite these challenges, the robust direct tax collections are expected to bolster the gross tax revenue for the current year.
Delving deeper into the composition of direct tax collections, personal income tax has emerged as the primary driver, with an impressive 23 per cent growth. In contrast, corporate tax collections have expanded by only 12 per cent according to the revised estimates for FY24. The momentum in personal income tax revenue has been consistently strong since FY22, with growth rates exceeding 20 per cent. This is largely attributed to initiatives like pre-filling of returns and the comprehensive annual information statement, which have streamlined the process and improved accuracy, thereby increasing tax contributions from existing taxpayers.
However, it is important to note that while personal income tax collections have soared, the tax base expansion has not kept pace. The number of individuals filing tax returns has only grown by 4.5 per cent between FY20 and FY23, suggesting that the existing taxpayers, predominantly salaried individuals, are bearing a greater tax burden.
In a historical shift, personal income tax revenue has outstripped corporate tax since FY21. This reversal of a long-standing trend where corporate tax collections were traditionally higher from 2000-01 to 2019-20 is significant. The estimated figures for FY24 and FY25 show personal tax collections exceeding corporate taxes by about 10 per cent.
The subdued corporate tax collections raise questions, especially considering that companies have been resilient and profitable despite economic challenges. This calls for introspection by the Centre to understand underlying factors. Meanwhile, personal income taxpayers may feel the pinch of higher taxes and may view high rates unfavorably.
As the Centre contemplates the next steps, there is an evident need to reform personal income tax and make the new regime more appealing. With no recent data available to assess the transition to the new tax regime, it’s clear that further efforts are required to incentivize taxpayers towards this change.
