– By HDFC Asset Management Company Limited (HDFC AMC)
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 Rs 13.70 lakh crore, which is 20.7% higher than the FY2023 collections of Rs 11.36 lakh crore for the same period. This persistent rise in tax collections bodes well for the fiscal balance, and indicates economic resilience.
The Net Direct Tax Collection of Rs 13.70 lakh crore includes Corporation Income Tax (CIT) at Rs 6.95 lakh crore (net of refund) and Personal Income Tax (PIT) including Securities Transaction Tax (STT) at Rs 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.
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 Rs 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.
CIT collections stand at Rs 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 taxpayers, and inclusion of new tax payers in the tax net. This rise in profits from existing taxpayers 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’.
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 estimates 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
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.
(The article is authored by HDFC Asset Management Company Limited.)
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