Govt expects direct tax collections to grow 30% in FY23

The Union government expects direct tax revenue to grow 25-30% in FY23, despite monthly direct tax receipts net of refunds showing signs of moderation from August.

Revenue secretary Tarun Bajaj said that direct tax collections remain robust, and the slowing growth rate in monthly direct tax collections, net of refunds, could be attributed to higher tax refunds issued at a faster pace. Direct tax collection primarily comprises personal income tax and corporation tax.

“We expect direct tax revenues to grow by 25-30% in FY23. It must be noted that there is a pickup in issuing refunds now with the IT portal functioning well. We are issuing refunds at a faster pace,” Bajaj said. “About 45% of returns are being processed the same day and another 30% within seven days of filing. Direct tax refunds have touched almost ₹1.5 trillion, which is 81% more than last year at the same time,” Bajaj said.

A 25% growth in direct tax collections will translate into a revenue of ₹17.25 trillion for the current fiscal.

With customs and excise duty mop-up likely to be lower than last year, robust direct tax revenues are expected to act as a buffer amid higher government spending due to higher-than-budgeted fertilizer and food subsidies. “Gross tax collections are more relevant to assess the health of the economy as net tax receipt after refunds is a dynamic figure. The government is proactively issuing refunds— ₹1.53 trillion so far this year, 81% more than the comparable period last year. Gross direct tax receipts up to 8 October is showing a 23.8% jump over a year ago. There is no contraction in direct tax receipts,” said a person privy to the government’s assessment of the tax collection figures.

The budget has estimated direct tax collections at ₹14.2 trillion, compared with ₹14.09 trillion collected last year, which indicates a very conservative budget estimate for direct tax revenues.

There is a big jump in corporate and personal income tax collections in July from that of the comparable month a year ago, followed by the contraction in August, although cumulatively, personal and corporate tax collection numbers show strong growth so far this year. Experts suggested that since the income-tax return filing due date was in July for assessment year 2022-23, followed by quick tax refunds, net collections have shown a decline in August from the year-ago period. In the assessment year 2021-22, the due date for filing tax returns was the end of December.

Data from the controller general of accounts released by the government last week showed that direct tax collections in August comprising personal income tax and corporation tax dropped 42% to ₹34,972 crore. While corporation tax mop-up halved during the month, personal income tax collections fell 38% in August on a year-on-year basis.

However, data released by the Central Board of Direct Taxes on Sunday showed that between 1 April and 8 October, direct tax collections touched ₹7.45 trillion, a 16.3% increase in net collections from a year earlier. In fact, it is 52.5% of the total budget estimates of direct taxes for FY23.

Refunds stood at ₹1.53 trillion during this period, which is 81% higher than the same period last year.

An email sent to a finance ministry spokesperson remained unanswered till press time.

CBDT chairman Nitin Gupta said at an event on 27 September in New Delhi that 58.3 million returns were filed in July for AY22-23, and almost 93% of the verified returns have already been processed. “There is an almost five times increase in the number of refunds issued so far compared to the preceding year,” he said then.

According to Archit Gupta, founder and chief executive of fintech firm Clear, adherence to the return filing due date and no postponement is good for the ecosystem, as it will help improve compliance and frees up time for chartered accountants, who can then focus on other compliances for their clients.

“We remain upbeat about the positive trend in advance tax collections sustaining in the second half of the current fiscal. The jump seen in personal income tax receipts in July compared to the same period a year ago and the moderation in August this year against the same period a year ago is driven by the spillover of return filing last year post-July. If the due date is 31 July, most people usually finish payment of dues by the 31st and spillover after the due date is limited,” Gupta said.

Aditi Nayar, chief economist at ICRA Ltd, said that she expects non-excise tax collections, before devolution to the states, to exceed the estimated budget estimates by ₹3-3.5 trillion.

Customs collection and excise duty mop-up posted a decline during the first five months of the fiscal on account of measures, including tax reduction in petrol and diesel and customs duty suspension for cotton to tackle inflation. The government is trying to cut avoidable spending amid concerns of private investment slowdown due to monetary policy tightening.

The government last month announced the extension of the free foodgrain scheme for another three months, costing the exchequer an additional ₹44,762 crore. It will take the total food subsidy bill this year to ₹3.2 trillion as against ₹2.06 trillion estimated in the budget.

The Union cabinet also approved the release of an additional 4% dearness allowance for central government employees and dearness relief for pensioners with effect from 1 July. This is expected to cost the government an extra ₹8,468 crore in the remaining eight months of the current fiscal.