The buoyancy in direct tax collections in the first nine months of this fiscal, led by robust personal income tax collections, is probably a signal that the recent drive to increase the tax base is beginning to show dividends. The estimated growth for gross tax collections in the Budget for 2023-24 was quite conservative at 10.5 per cent, taking into account the possible decline in inflation and moderation in growth. But the 16.77 per cent growth in the April-December 2023 period has helped collect ₹17.18-lakh crore of tax, which is almost 81 per cent of the Budget estimate. This can prove quite helpful in achieving the fiscal deficit target for this fiscal year.

The growth in corporate tax collections has been muted in the first nine months of this fiscal year, at 8.32 per cent. This is not surprising given the challenges being faced by companies due to tepid global demand, rising interest burden and lower revenue growth, resulting in lower profitability. Personal income tax collections have, however, surprised pleasantly, with strong growth of 26.11 per cent. This growth is accompanied by a 9 per cent increase in number of income tax returns filed for the accounting year 2023-24, reaching a record high of 8.18 crore. The increase in tax base could be partly due to the increasing formalisation of the economy and a younger workforce joining the services sector where the pay packages are higher. Reforms in personal income tax rules could also be contributing to the increase.

Among these is the new tax regime, where the taxpayer enjoys a lower tax rate while foregoing all exemptions and deductions. This could be resonating with new taxpayers due to its simplicity, increasing compliance. Two, the practice of pre-filing the returns with data including salary, interest, dividend, brought forward losses and MAT credit is also making the process easier. Three, the information on financial transactions of taxpayers given in the annual information statement and taxpayer information summary helps in capturing all the income of the taxpayer, which can be inadvertently omitted, thus increasing the tax revenue. Four, expansion of the number of transactions subject to tax collection at source is also perhaps proving to be a good idea, bringing high income earners who have been evading paying tax, into the tax net. The Centre must continue this drive to plug the loopholes and simplify tax structure and process in order to expand the income tax payer base.

With the first advance estimate pegging the nominal GDP growth for FY24 at 8.9 per cent, the fiscal deficit could be under pressure. Decline in central excise duty collection from fuel, shortfall in disinvestment programme and higher outgo on food and fertilizer subsidy will also expand the fisc for FY24. Higher direct tax collections along with robust dividends from public sector enterprises and the Reserve Bank of India will prove handy in achieving the fiscal deficit target of 5.9 per cent of GDP budgeted for FY24.

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