Direct tax mop-up betters estimate for the first time in four years

The Centre’s direct tax revenue has exceeded the revised Budget target for the first time in four years on the back of robust advance tax mop-up for 2020-21 (FY21), providing a buffer to the otherwise fiscally stressed government. 

With the payments of the last instalment on Monday, advance tax collection for FY21 was around 7 per cent higher than last year’s.

Net direct tax collection stood at Rs 9.18 trillion as of March 16, exceeding the Rs 9.05 trillion revised Budget target.

It is, however, 4 per cent lower than the last year’s collection of Rs 9.56 trillion in the comparable period. Bengaluru, Mumbai, and Jaipur are the only jurisdictions that have posted the overall direct tax growth at 10 per cent, 3.5 per cent, and 2.2 per cent, respectively. With another fortnight left for the fiscal year closing, additional tax collection may provide the government with additional spending power.

Direct tax collection in FY17, at Rs 8.49 trillion, had surpassed the revised estimate, which was the same as the Budget estimate at Rs 8.47 trillion.

“The revised target for the current fiscal is fairly conservative. There is a pick-up in economic activity. Advance tax mop-up has been excellent. We may even match the last year’s collection, if not more,” said a senior government official.

In the Budget presented last month, the direct tax collection target for FY21 saw a significant fall from the Rs 13.19 trillion estimated earlier, in the wake of the Covid-19 pandemic.

The contraction in net direct tax collection has narrowed to 4 per cent year-on-year compared to a 9 per cent decline seen in January. In 2019-20, the income-tax department fell short of the revised estimate by nearly Rs 70,000 crore.

Advance tax collection in 2020-21 stands at around Rs 4.7 trillion, the provisional numbers shared by a government official indicated. Seven of the top 11 jurisdictions posted growth in advance tax collection, with Mumbai leading with a 17 per cent expansion. Among the other top four cities, Delhi, Bengaluru, and Chennai reported a (-) 1 per cent, 6 per cent, and (-) 7 per cent change, respectively, over the last financial year.

Gross collection is down by just 1 per cent on account of 13 per cent growth in refunds over the last year. Gross collection stood at Rs 11.20 trillion on Tuesday, as against Rs 11.35 trillion in FY20. Refunds are up at Rs 2.02 trillion against Rs 1.78 trillion last year.

“Besides, payments under the Vivad se Vishwas scheme are expected, providing additional cushion,” said an official.

Advance tax means paying tax as and when the money is earned rather than waiting for the end of the fiscal year. It gives an indication of economic sentiment.

The first instalment is to be paid by June 15 (15 per cent), the second by September 15 (30 per cent), the third by December 15 (30 per cent), and the remaining 25 per cent by March 15.

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.