Representative image.
| Photo Credit: Getty Images/iStockphoto

Share of personal income tax and indirect tax shows increase

Over the last week, during the election campaign, the Congress’ manifesto and the party’s emphasis on social justice and welfare were suddenly thrust into the limelight. Prime Minister Narendra Modi sought to give the Congress’ demand for a caste census and its plans to study distribution of surplus government land to the poor, among others, a communal turn. The Congress defended its manifesto saying the rising wealth inequality in the country needs to be addressed and dismissed Mr. Modi’s claims that its plans intended to favour a particular religious group. In the midst of this political controversy, the chairman of the Indian Overseas Congress, Sam Pitroda, floated the idea of an inheritance tax, which is not in place in India and is also not mentioned in the Congress’ manifesto.

Almost concurrently, as this political debate was playing out, the Finance Ministry released provisional data that showed an uptick in net tax collections. This is mostly driven by an increase in personal income tax and securities transaction tax collections. On the other hand, collections from net corporate taxes have reduced marginally. The data also show that revenues from personal income tax and securities transaction tax grew at almost double the pace compared to revenues from corporate taxes last year.

We look at some numbers to provide context to the ongoing debate and the recent release of tax data.

Chart 1 | the chart shows corporate tax and personal income tax as a share of gross tax revenue, as of February every year.

Chart appears incomplete? Click to remove AMP mode

As can be seen from the chart, the share of corporate tax has been on a decreasing trend, while that of personal income tax has been increasing. As of February 2024, the gap between the two tax shares further increased, with income tax forming 28% of the gross tax — a new peak. The sharp fall in corporate tax after FY19 can be attributed to the deep corporate tax cuts introduced by the Bharatiya Janata Party-led government in September 2019.

The data also show that the share of direct taxes has been decreasing, while that of indirect taxes has been increasing. Direct taxes, which include taxes levied directly on the incomes of corporations and individuals, are said to be “progressive” because those who earn less are taxed less and vice-versa. On the other hand, indirect taxes, which include union excise duties and the Goods and Services Tax are considered “regressive” as all consumers, regardless of their income levels, pay the same amount.

Chart 2 | The chart shows the share of direct and indirect taxes in the combined tax revenue receipts of the Centre and the States across years.

As can be seen from the chart, the share of indirect taxes, which had been falling steadily since the 1980s, has increased in the past decade. On the other hand, the share of direct taxes, which had been increasing, has consistently recorded a downturn in recent years.

Chart 3 | The chart shows the annual income bracket-wise share in total income tax returns filed (blue) and the share in total amount of income tax paid (red). Figures in %

Importantly, Chart 3 shows that a bulk of those who file personal income tax earn an annual income of ₹1 lakh-₹5 lakh. Richer individuals who earn more than ₹50 lakh are few and far between.

Moreover, a comparison with BRICS economies, for which data are available, shows that the effective personal income tax rate in India is among the highest (Chart 4).

Chart 4 | The chart compares the effective personal income tax rate in India with other BRICS countries which had data. 

Note: In case a country had two tax regimes, the highest effective tax rate was considered for comparison

Put together, the data show that poorer citizens and those in the middle-class category are increasingly shouldering a higher share of the tax burden. This is due to the combination of the rising share of personal income tax and indirect taxes in total revenue.

Rachita Rabboni is interning with The Hindu Data Team

Source: Centre for Monitoring Indian Economy, Controller General of Accounts, PricewaterhouseCoopers (PWC)

Watch our Data video: Watch | Key questions remain unanswered in electoral bonds controversy

Image used for representational purpose only.
| Photo Credit: S. Siva Saravanan

Gross direct tax collection grew 15.73% to ₹6.53 lakh crore till August 10 in the current fiscal, the Income Tax department said on August 11.

Net direct tax collection after adjusting refunds stands at ₹5.84 lakh crore, which is 17.33% higher than the net collections for the corresponding period of last year.

Also read | Net direct tax collections up 17.63%, exceed revised estimates target

“The provisional figures of direct tax collections up to 10 August, 2023 continue to register steady growth,” the Central Board of Direct Taxes (CBDT) said in a statement.

The collection is 32.03% of the total budget estimates of direct taxes for current fiscal 2023-24.

Refunds amounting to ₹69,000 crore have been issued till August 10, which are 3.73% higher than refunds issued during the same period in the preceding year.