Bengaluru lone bright spot in direct tax mop-up with 7.3% growth

Bengaluru, which houses global and Indian IT giants, has posted 7.3 per cent growth in direct tax collection in the fiscal year 2020-21 even as several key jurisdictions, including Delhi and Chennai, faced a double-digit decline.

As overall direct tax collection, net of refunds, declined 10 per cent in 2020-21 to Rs 9.45 trillion year-on-year, Bengaluru accounted for a 12.3 per cent share in country’s collection.

India’s IT hub saw direct tax collection, net of refunds grow to Rs 1.17 trillion in FY21 from Rs 1.09 trillion in the previous year.

“Bengaluru is the only jurisdiction posting an increase. It was relatively unaffected by the pandemic because it houses e-commerce giants. Rather, businesses of online platforms have grown during this time. Moreover, these IT players get a lot of business from overseas clients, which diversifies their earnings,” said a government official.

He added: “Even Hyderabad, which houses several IT players, has performed well, posting a marginal decline.”

Hyderabad reported a 4 per cent decline with a collection of Rs 55,000 crore in FY21 against Rs 57,000 crore a year earlier.

Bengaluru bumped up India’s direct tax collection. Mumbai, which is India’s largest jurisdiction, reported a 7.8 per cent decline in net collection at Rs 2.95 trillion. Delhi and Chennai reported a 20 per cent and 15 per cent decline, respectively.

Rajat Mohan, partner, AMRG Associates, said during the pandemic, IT sector and pharmaceutical were the only ones driving growth, whether it was equity markets, jobs, GDP, or tax collection.

“Bengaluru, being the Silicon Valley of India, has stood up to the challenge of meeting increased the global demand of IT products, resulting in higher tax collection from the jurisdiction. During last year, Bengaluru attracted huge capital from domestic and foreign sources,” said Mohan.

Sandeep Jhunjhunwala, partner, Nangia Andersen LLP, said during FY21, technology companies, especially in the services vertical, had a tailwind on account of newer projects centring on digitisation and enabling businesses technologically.

“There has been an upsurge in the use of digital technologies such as artificial intelligence, cloud revolution, automation, and virtual reality, and are changing the way businesses operate. These have led to an uptick in revenue, supported by lower operational costs and work from home for tech sector employees. 

“Additionally, the city is home to new-age digital companies to which the equalisation levy applies, adding to the kitty of corporate tax collection,” added Jhunjhunwala.

Direct tax collection, excluding refunds, declined below 10 trillion for the first time in four years during 2020-21. However, collection exceeded the revised budget estimate by 4.5 per cent. The budget estimates were revised lower from Rs 13.19 trillion in view of the economic impact of the pandemic. Collection breached revised estimates for the first time in four years.

The government issued more refunds —41 per cent higher — than last year and it provided relief to assessees. Personal tax collection, including refunds, was 2.5 per cent higher, a development that was not expected. 

About 45 per cent of direct tax revenue collection comes from advance tax, 35 per cent from tax deducted at source, and the remaining 20 per cent from self-assessment and recovery.