Income tax pie in revenue to touch 15-year peak

What coincided with FY24’s strong growth in income taxes is the sluggishness in customs and excise duty receipts. It is expected to improve only slightly in the next fiscal year.

Receipts from corporate and personal income tax are projected to account for 57.4% of the Centre’s gross tax revenue in FY25, the highest since 2009-10 when it stood at 60%.

“This is among the highest. There had been 56% earlier. Even in 2013-14 and 2014-15, it was 56%. After that, it has decreased," Malhotra said in an interview. Data available with the income tax department showed that the share of direct taxes in the Centre’s gross tax receipts was 46.84% in the pandemic year of FY21 but crossed 52% in FY22 and continued to improve further.

Corporate tax is expected to grow 13% in FY25 to ₹10.4 trillion, while personal income tax is projected to grow 13% to ₹11.6 trillion. Centre’s GST collection is expected to grow at 11.6% to ₹10.7 trillion in FY25.

However, customs duty receipts are expected to grow at a much slower 5.7%, and excise duty receipts at just 4.9%.

“The increase in share of direct taxes in gross tax collection is a reflection of the buoyancy and acceleration seen in direct tax collections. In the past, direct tax regime has seen a major effort to ramp up to compliance, a shift away from tax exemptions and administrative initiatives such as faceless assessments. The growth in corporate profits, too, has helped in the direct tax collection growth," said Suranjali Tandon, associate professor at National Institute of Public Finance and Policy.

Direct taxes are collected based on an assessee’s ability to pay and the outgo is structured to increase as the income level progresses, leading to those in higher income brackets paying more. This aligns with the ideas of equity and social justice, while indirect taxes apply to the rich and the poor alike but leads to a higher burden on those in the lower income bracket relative to their income. So, when India rolled out GST in 2017, it opted for four different rates to make the tax structure as progressive as possible.

Excise duty collection in the current fiscal is impacted by two factors and it has accordingly been revised down in the interim budget’s revised estimates. “There was an excise duty rate cut in May 2022, and on the windfall tax, we have not been able to get as much," Malhotra said, referring to the benign global oil price now.

So far in FY24, average price of Indian basket of crude oil stood at $82.12 a barrel, compared with $93.15 in FY23. Last June, oil price had shot up to $116 a barrel, data from the Petroleum Planning and Analysis Cell, a government unit, showed. Malhotra cited Unctad figures to show that globally, trade shrank 4.5% in CY23, while Indian imports shrank 7.9% in dollar terms in 9MFY24, impacting India’s customs duty receipts. “Going forward, we expect it to improve," said Malhotra.

In FY25, I-T to account for 57.4% of Centre’s gross tax revenue