Tuesday's Talking Points
Direct Tax Collections – At an All-Time High!
What’s the Point? (A Brief Summary)
According to the Central Board of Direct Taxes (CBDT), the provisional figures of Direct Tax Collections for FY2024YTD (as on December 17, 2023) show that Net Direct Tax Collections (NDTC) have already crossed 75% of the budgeted estimates (BE) of the Direct Tax Revenue for FY2024. The collections so far stand at their highest level of ₹13.70 lakh crore, which is 20.7% higher than the FY2023 collections of ₹11.36 lakh crore for the same period. This persistent rise in tax collections bodes well for the fiscal balance, and indicates economic resilience.
Putting Data into Perspective
Source: India Budget, CBDT, International Monetary Fund (IMF)
Note: Final Receipts refer to the actual receipts for FY2019-23 and the budgeted receipts for FY2024
Rise in Number of Personal Income Tax Returns Filings
The Net Direct Tax Collection of ₹13.70 lakh crore includes Corporation Income Tax (CIT) at ₹6.95 lakh crore (net of refund) and Personal Income Tax (PIT) including Securities Transaction Tax (STT) at ₹6.73 lakh crore (net of refund). A notable trend is that there has been a rise in PIT filers over the years, and personal tax collection are now almost equal to the corporate tax collections.
Source: India Budget, Jeffries. BE: Budgeted Estimates
CBDT data shows that the number of Income Tax Returns (ITR) filings by individual taxpayers has shown an upswing of over 2x in the last few years – from 3.5 crore filings in FY2014 to 7.33 crore filings in FY2023. As per Press Information Bureau (PIB), 7.41 crore returns have been filed for FY2024 till date, including 53 lakh new first-time filers in the year. Chart 2 shows a 3x rise in Individual Income Tax Filers with Gross Income more than ₹5 lakh/year over the last 8 years. This trend is expected to continue with gradual widening of tax base due to various reform measures put in place like introduction of new data sources in Statement of Financial Transactions, introduction of new tax deducted at source (TDS) codes and multiple others.
Rising Corporate Profits helping the rise in Direct Tax Collections
CIT collections stand at ₹6.95 lakh crore (net of refund) (as on December 17, 2023), which is 15% higher than the corresponding period in FY2023. Higher tax collections imply a higher tax base, which is attributable to two factors: higher profits from existing tax payers, and inclusion of new tax payers in the tax net.
In our recent Talking Point named HDFC Mutual Fund's Tuesday's Talking Point - Rising Corporate Profitability bodes well for India's Growth Story! , we talked about certain structural growth drivers and a broad-based improvement in profitability across various sectors in the recent past leading to rise in listed corporate space’s PAT/GDP ratio to 4.7% on a trailing 12-month basis post-Q2FY2024 results. This rise in profits from existing tax payers is a good sign for corporate India. Further, the Government has been making efforts like Goods and Services Tax structure, TDS and Tax Collection at Source (TCS) systems, and digital payments, which have raised the costs of being out of the formal ecosystem. With rising access to relatively cheaper financing in formal financial systems, businesses are entering the formal ecosystem, increasing the 'tax base'.
Fiscal Deficit to remain close to FY2024 Target
With FY2024 witnessing 75% of the BE of Tax Collections already being achieved, the revenue collections for FY2024 remain strong. These better-than-expected direct tax collections and non-tax revenues are likely to make up for likely shortfall in divestment receipts and indirect tax collections. Further, the spending is largely on track to achieve budget estimate with capital spending remaining robust with higher outgo on roads and railways, and disbursement of interest free capex loans to states. Hence, it is expected that fiscal deficit for FY2024 will remain close to target of 5.9% - lower than 6.4% of FY2023.
Conclusion
In the current scenario, larger growth in spending is taking place from capital expenditure. In that light, the higher tax revenues make the outlook for capital expenditure more robust. In addition to that, with the fiscal deficit likely to be under control, the risk of higher than expected borrowings during the year seems to be lower, which bodes well for India’s relative macroeconomic stability, and places it structurally in a strong position globally.
Sources: India Budget, CBDT, Jeffries, IMF, PIB, and other publicly available information.
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