Net direct tax collection jumps 60.8% to Rs 9.5 trillion in FY22 so far

Improvement in mop-up bodes well for achieving govt's fiscal deficit target at 6.8% of FY22 GDP

Net direct tax collection in FY22 as of December 16 rose 60.8 per cent to Rs 9.5 trillion, signalling that the government may end up this fiscal year with a comfortable revenue position.

The government earlier this month sought approval from Parliament for a net additional spending of Rs 3 trillion in FY22, according to the second batch of supplementary demands for grants, tabled by Union Finance Minister Nirmala Sitharaman.

The additional expenditure will be on food and fertiliser subsidies, export and production incentives, and repaying Air India’s past dues.

The data released by the finance ministry showed net direct tax collection till Thursday includes corporation tax at Rs 5.16 trillion and personal income tax, including securities transaction tax (STT), at Rs 4.29 trillion.

During the period, refunds of Rs 1.35 trillion have been issued.  

Pranav Sayta, international tax and transaction services leader at EY India, said significant growth in net direct tax collection, of more than 60 per cent over FY21 and more than 40 per cent over FY20, reflected the robust economic recovery and improved profitability and earnings of companies.

“It also supports the government’s efforts at managing the fiscal deficit,” he added.

Cumulative advance tax collection for the first, second, and third quarters in FY22 rose 53.5 per cent to Rs 4.6 trillion as of Thursday. This includes corporation tax of Rs 3.49 trillion and personal income tax at Rs 1.1 trillion.

The finance ministry said this amount was expected to increase as further information was awaited from banks.

“The healthy expansion in advance tax collection reinforces our view that the recovery is K-shaped, with the formal sectors gaining market share. The spate of price increases this quarter seems to have buffered margins to an extent in some sectors. We expect direct tax collection to exceed the Budget estimates by around Rs 85,000 crore to Rs 1 trillion,” he added.

Sustained improvement in revenue collection also bodes well for achieving the government’s fiscal deficit target at 6.8 per cent of GDP for the current fiscal year.

In the first seven months of FY22, the government stepped up public capital expenditure in infrastructure by 28.3 per cent over the corresponding period of last year with a focus on the railways, highways, housing, and urban affairs. Revenue expenditure during this period saw a much lower growth rate of 7.5 per cent, indicating a pronounced shift towards a much improved quality of expenditure.

India’s GDP grew 8.4 per cent in the September quarter, with the finance ministry saying it could be close to double digits. In sync with economic recovery, goods and services tax (GST) collection in November, representing transactions done in October, rose to its second-highest level of Rs 1.31 trillion, crossing Rs 1.3 trillion for two months on the trot, with boosted festive demand.

GST collection was 25 per cent higher than in November 2020.