Refunds save the day for April direct tax collection; mop-up down 5%

Direct tax collection surged 36.5 per cent to Rs 34,784 crore in the first month of fiscal year 2020-21, despite a nationwide lockdown, thanks to a 63 per cent year-on-year (YoY) fall in tax refunds in April.
 

Without accounting for refunds, the collection contracted 5.4 per cent, indicating muted economic activity as the Covid-19 pandemic and subsequent curbs paralysed most sectors.
 

Gross direct tax collection stood at Rs 41,556 crore in April, as against Rs 43,950 crore in the corresponding period last year. Refunds of Rs 6,772 crore were about a third of the amount disbursed in the same month last year, at Rs 18,474 crore, which boosted net collection. Incidentally, the government last month announced expediting refunds up to Rs 5 lakh to improve cash flows for individuals and small and medium enterprises amid coronavirus-related disruptions in the economy.
 

“A sharp fall in refund disbursement can be credited for the high double-digit net direct tax collection growth seen in April. The gross figure, on the other hand, paints the real picture, where collection has fallen,” said a government official.

Coming months will see net collections under pressure as the base effect will wean off, and economic growth is at a standstill.

A tax official said the lower refunds in April were due to avoidance of ad hoc adjustment, where large corporates paid extra tax in March on the request of tax officers to meet tax targets.

These are later adjusted in April by way of refunds or deducted as TDS payments. “This time, due to economic uncertainty and lockdown, there wasn’t much extra tax paid by corporates in March. Therefore, refunds are low,” said another official.
 

Refunds in the Mumbai zone were 84 per cent lower at Rs 1,600 crore, compared with the Rs 10,000 crore refunds issued in April last year.
 

Direct tax collection missed the downward revised target for 2019-20 by Rs 1.42 trillion, settling at Rs 10.27 trillion, a 9.5 per cent fall over the previous year. A growth rate of 28.2 per cent will be needed as against the assumed rate of 12 per cent in the Budget to meet the collection target of Rs 13.19 trillion.

With earnings of a majority of companies hit due to the Covid-19 lockdown, the February revenue collection target announced in the Budget no longer holds. Hence, income tax officers have urged for a revision in the Budget estimates.
 

FY21 revenue projections were based on an assumed nominal GDP growth of 10 per cent, which means a tax buoyancy of 1.2. The Economic Survey had pegged FY21 real GDP growth at 6-6.5 per cent, which is far from realistic now.
 

The International Monetary Fund (IMF) has cut India’s growth forecast for FY21 in its World Economic Outlook (WEO) report to 1.9 per cent from 5.8 per cent projected in January.