Direct tax revenue receipts refer to the income that the government generates from taxes directly imposed on individuals and corporations. In India, the two primary components of direct tax revenue are Personal Income Tax and Corporation Tax. These taxes are crucial for funding the government’s expenditures and play a significant role in economic policy and wealth distribution. Personal Income Tax is a tax levied on the income earned by individuals, Hindu Undivided Families (HUFs), and other non-corporate entities like trusts and associations. This tax is progressive, meaning that higher-income earners are taxed at higher rates. The Income Tax Act of 1961 governs the collection of personal income tax in India. Corporation Tax is a tax levied on the profits of companies and businesses. This tax is imposed on domestic companies registered under the Companies Act, as well as foreign companies operating in India. Like personal income tax, corporation tax is governed by the Income Tax Act of 1961.
The most striking observation is the dramatic increase in both personal income tax and corporation tax collections over this period. In 1970-71, personal income tax collections stood at a mere 114 crore rupees, while corporation tax collections were 371 crore rupees. Fast forward to 2023-24, and these figures have skyrocketed to 5,82,516 crore rupees and 5,95,744 crore rupees respectively.
The growth trajectory, however, has not been uniform. The initial decades show relatively modest growth, with both tax categories remaining under 10,000 crore rupees until the late 1980s. The 1990s marked a turning point, coinciding with India’s economic liberalization. From this period onwards, we see a more rapid and consistent upward trend in both tax categories.
Interestingly, the relationship between personal income tax and corporation tax has evolved over time. In the earlier years, corporation tax consistently outpaced personal income tax, often by a significant margin. However, this gap has narrowed in recent years, with personal income tax collections coming very close to, and in some years even surpassing, corporation tax collections. This could indicate a broadening of the individual tax base, improved compliance, or changes in tax policies affecting individuals and corporations differently.
The data also reveals the impact of major economic events. For instance, there’s a noticeable dip in collections for both categories in 2020-21, likely reflecting the economic impact of the COVID-19 pandemic. However, the swift recovery and continued growth in subsequent years demonstrate the resilience of India’s tax system and economy.
The most recent years show the highest-ever collections, with both personal income tax and corporation tax crossing the 5 lakh crore rupee mark. This substantial increase in direct tax collections over the decades reflects India’s economic growth, the expansion of the formal sector, improved tax administration, and potentially, better compliance.
In conclusion, this data paints a picture of India’s evolving tax landscape, mirroring its journey from a developing economy to one of the world’s largest. The exponential growth in direct tax collections is a testament to India’s economic progress, though it also invites questions about tax equity, the efficiency of collection mechanisms, and the balance between different types of taxes in the overall revenue mix.
References
- Dhoot, V. (2024, April 22). Net direct tax collections exceed 2023-24 target. The Hindu. https://www.thehindu.com/business/Economy/direct-tax-collections-exceed-estimates-in-fy24-jump-18-to-1958-lakh-crore/article68090542.ece
- Net Direct Tax collections (provisional) for Financial Year (FY) 2023-24 exceed Union Budget Estimates by Rs. 1.35 lakh crore i.e. by 7.40%. (n.d.). https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2018373
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Raghavan, T. S., & Raghavan, T. S. (2024, October 17). Personal income tax now over 30% of govt’s tax revenue, significantly higher than corporate tax. ThePrint. https://theprint.in/economy/personal-income-tax-now-over-30-of-govts-tax-revenue-significantly-higher-than-corporate-tax/2316111/
- Reserve Bank of India. (n.d.). https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=801
- DBIE. (n.d.). https://data.rbi.org.in/#/dbie/home
About Author: Pankaj Chowdhury is a former Research Assistant at the International Economic Association. He holds a Master’s degree in Demography & Biostatistics from the International Institute for Population Sciences and a Bachelor’s degree in Statistics from Visva-Bharati University. His primary research interests focus on exploring new dimensions of in computational social science and digital demography.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of 360 Analytika.
Acknowledgement: The author extends his gratitude to the Reserve Bank of India for providing data support.
This article was posted by Sahil Shekh, Editor at 360 Analytika.
