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The Union government has achieved over a third of the direct tax collection target for this fiscal year during the April-July period, with personal income tax collection exceeding corporation tax mop-up amid tightened enforcement and compliance measures, official data showed.

Overall direct tax collections, net of refunds, comprising corporation tax and personal income tax, grew by 40% in the four months up to July to 5 trillion, or about 35% of the full year’s target of 14.2 trillion.

The robust tax performance will provide the government with additional spending muscle amid global uncertainty and tighter monetary policy regime, which could weigh on private investment and growth outlook.

Direct tax refunds rose 38% to 67,000 crore.

Robust collections are likely to help bridge the shortfall in indirect taxes, particularly excise duty, as the government cut taxes on petrol and diesel to control spiralling retail prices following a spike in global crude prices.

Personal income tax collection at 2.67 trillion has exceeded corporation tax collection by 45,000 crore, posting a 52% growth over the previous year. This comes even as the ministry of finance did not extend the income tax filing deadline beyond 31 July for the first time in nine years.

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Government officials attributed it to tightened enforcement and compliance using technology including the introduction of Annual Information Statement (AIS) last year. AIS gives a taxpayer a comprehensive view of financial transactions carried out during a financial year, including interest, dividend, securities transactions, mutual fund transactions and foreign remittances.

“We have seen a sharp increase in self assessment tax mop up, which could be a result of the introduction of AIS and data collection from different source agencies," said a government official.

With that, self-assessment tax, which is part of personal income tax, jumped 275% to 43,500 crore in the period up to July. Personal income tax has touched 38% of FY23 budget target of 7 trillion.

Meanwhile, corporation tax collection rose 32% to 2.22 trillion. It is 31% of FY23 budget target of 7.2 trillion.

In 2021-22, corporation tax collection stood at 7.12 trillion, as against 6.73 trillion in case of personal income tax.

Queries emailed to the central board of direct taxes and the finance ministry remained unanswered till press time.

Aravind Srivatsan, tax leader, Nangia Andersen LLP said the latest Q1 earnings season showed that most corporates delivered better profits due to pent-up demand, leading to higher advance taxes. “Services sector has also witnessed significant pay hikes and job creation post pandemic, which could explain the tax growth phenomenon," he said. The Indian economy is likely to have grown in double digits in the June quarter led by a strong rebound in consumption, recovery of the services sector, and a low base of last year. Recovery in contact-intensive services like travel, tourism, etc after receding of the pandemic and withdrawal of lockdown conditions in several states have contributed positively to jobs availability, reflecting in personal income tax collections.

Sudhir Kapadia, partner at EY, said the income tax department’s AIS that reminds taxpayers about transactions in a particular financial year is a key factor enhancing compliance. He also said that the scope of taxes collected and deducted at source (TCS and TDS) has increased over the years and it has become an important source of tax revenue receipts. The government from 1 July this year introduced a 1% TDS on virtual digital assets for transactions of more than 10000. Securities transaction tax grew by 8% to 10,000 crore in the April-July period.

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