Personal Income Tax Expected to Exceed Corporate Tax for Second Year

In the realm of tax revenue, a significant trend is emerging as Personal Income Tax (PIT) is poised to surpass Corporate Income Tax (CIT) for the second consecutive year, according to recent data from the Income Tax department. This fiscal year, FY 2023-24, also anticipates direct taxes to outweigh indirect taxes in overall tax collection, marking a notable shift in the tax landscape.

Reviewing income tax data spanning from FY 2000-01 to FY 2022-23 reveals that only two instances, namely FY 2020-21 and FY 2022-23, witnessed PIT collection outpacing CIT. The Budget projection for FY 2024-25 forecasts PIT collection to exceed ₹10.22 lakh crore, compared to ₹9.22 lakh crore in the current fiscal year, continuing the trend of PIT dominance over CIT.

In a recent interview with Businessline, Revenue Secretary Sanjay Malhotra expressed optimism about the surge in PIT collection, attributing it to various governmental initiatives. These include the extensive utilization of technology, facilitating the filing of updated returns, leveraging Annual Information Statements (AIS), and the simplification and rationalization of tax rates.

Nitin Gupta, Chairman of the Central Board of Direct Taxes (CBDT), underscored the role of increased tax returns in driving tax collection growth. He noted a 5% growth in returns last year, followed by a remarkable 9% growth this year. Gupta emphasized that the rising PIT signifies India’s progression towards becoming a developed nation, aligning with Prime Minister’s vision for a “Viksit Bharat” by 2047 and positioning as the third-largest economy by 2027.

Despite the positive trajectory, taxpayers awaiting relief through rate rationalization might need to exercise patience. Malhotra emphasized the necessity of evaluating the impact of recent changes in tax rates before considering further adjustments. He highlighted the importance of tax stability and certainty, cautioning against hasty rate modifications.

Moreover, data indicates a notable surge in the share of direct taxes in total tax collection, reaching its highest point in 14 years by the end of FY 2023-24. This marks a significant shift, with direct taxes estimated to constitute 56.6% of total tax collection, the second-highest level in 24 years, trailing only behind the peak of 60.8% achieved in FY 2009-10.

Factors contributing to this trend include successive reductions in central excise duty over the past four years and decreased mobilization through custom duty due to geopolitical factors impacting imports and exports. However, amidst this shift, robust GST collections provide a positive outlook for indirect taxes.

As India continues its journey towards economic development, the evolving tax landscape underscores the importance of monitoring these trends and ensuring fiscal policies align with long-term objectives.