Growth in Net Direct Tax Collections
Context:
India’s net direct tax collections surged by 17.7% in the fiscal year 2023-24, reaching ₹19.58 lakh crore. This growth slightly exceeded the revised estimates for the year.
Relevance:
GS-03 (Economy)
Facts for Prelims:
- Personal income tax and corporate tax are the two categories of direct taxes imposed on individual income or business earnings. These taxes cannot be transferred as a burden from one individual to another.
- Corporate tax: Corporate tax is a direct tax levied on the net revenue or profit generated by firms.
- Direct tax: A tax that is paid directly to the institution that is imposing it by an individual or an organization is known as a direct tax.
- Indirect tax: Indirect taxes are those levied on products or services. Instead of an individual paying the government directly, they are charged on products.
- Securities Transaction Tax (STT): It is a type of turnover tax where the investor is obliged to pay a tax on the total sum received or paid in a transaction done through an exchange.
- Note: It is not applicable for commodities and currency transactions and on transactions outside of the exchange.
Key Highlights:
- Personal income tax (PIT) witnessed a significant increase, contributing 53.3% to the tax kitty, up from 50.06% in the previous year. In contrast, the contribution of corporate taxes decreased to 46.5% from 49.6%.
- The final fortnight of the financial year saw an uptick in net tax collections, primarily driven by personal income tax (PIT) and securities transaction tax (STT).
- Both PIT and STT receipts grew at almost double the pace of corporate taxes.
- By the end of March, PIT and STT inflows had increased by ₹73,000 crore, reaching a full-year tally of ₹10.44 lakh crore. These taxes accounted for 51.4% of net direct tax receipts.
- While gross corporate tax collections increased, net tax receipts from corporations decreased slightly. Adjusted for refunds, net corporate tax receipts dropped from ₹9.14 lakh crore to ₹9.11 lakh crore by the end of the financial year.
- The gross direct tax kitty for 2023-24 amounted to ₹23.37 lakh crore, reflecting an 18.5% growth compared to the previous fiscal year. Gross PIT and STT receipts contributed significantly to this growth, totaling ₹12.01 lakh crore.
The Role and Benefits of Direct Taxes:
- Direct taxes, such as income tax and wealth tax, are based on the principle of ability to pay, ensuring fairness in distributing the tax burden. This progressive nature of direct taxation helps reduce income and wealth inequalities, promoting social equality.
- Compared to indirect taxes, direct taxes provide precise estimates of revenue, instilling certainty in tax collection. Taxpayers are aware of their obligations, facilitating accurate revenue estimation by the government.
- Direct taxes are elastic and adaptable, generating significant revenue that adjusts with changes in national income or wealth. This automatic adjustment makes direct taxes a productive fiscal tool.
- Direct taxes are economically efficient, as they involve lower administrative costs and reduce the likelihood of tax evasion. Collecting direct taxes at the source minimizes administrative burdens and enhances economic efficiency.
- Direct taxes also have educational value, fostering a sense of civic responsibility among taxpayers. Citizens become more aware of their duty to contribute to public finances and monitor government spending. Additionally, direct taxation can serve as an effective anti-inflationary measure by absorbing excess purchasing power during periods of inflation, contributing to price stability.
