Personal income and corporate tax collections are likely to rise to more than ₹19 lakh crore in 10 years of Prime Minister Narendra Modi-led Government, providing more leeway to come out with people-friendly tax measures.
Driven by the increasing income of individuals, net direct tax collections after adjusting for refunds increased from ₹6.38 lakh crore in FY 2013-14 to ₹16.61 lakh crore in FY 2022-23.
In the current financial year, the collections from net direct taxes -- personal income tax and corporate tax -- have so far grown by 20% and at this pace, the mop-up is likely to be around ₹19 lakh crore in the fiscal ending on March 31, 2024.
The projected amount will exceed the estimate of ₹18.23 lakh crore in the 2023-24 Budget.
Over the years, the Government has been trying to make the tax regime simpler with lower rates and fewer exemptions. In 2019, the Government offered a lower rate of tax for corporate’s who forego exemptions. Similar scheme was introduced for individuals in April 2020.
The new income tax regime for individuals was made more attractive in the 2023-24 Budget by rationalising the tax slabs, raising basic exemption limit to ₹3 lakh and including standard deduction of ₹50,000. It has also been made the default tax regime in the income tax return form.
However, the Government's proposal during the year to include credit card spending in foreign currency under RBI's Liberalised Remittance Scheme's (LRS) annual limit of $2.50 lakh per person faced a strong backlash. The move to bring foreign credit card spends under LRS would have also meant that Tax Collected at Source (TCS) would be required to be deducted at the time of making payments.
Banks also conveyed that there would be compliance issues while deducting the TCS and subsequently, the Government had to defer the implementation of the proposal.
Indicating widening of tax base subsequent to various reform measures put in place by the Income Tax Department, the number of ITRs filed by individual taxpayers increased from 3.36 crore in 2013-14 to to 6.37 crore in 2021-22 registering an overall increase of 90%. In 2023-24, 7.41 crore returns have been filed till October 26, 2023, including 53 lakh returns by first-time filers.
On February 1, the Government will present a vote on account as general elections are due in April-May. The full Budget is likely to be presented in July, 2024, by the new Government to be formed after the elections.
Prime Minister Narendra Modi-led Government came to power in 2014.
Shardul Amarchand Mangaldas & Co Partner (Direct Tax) Gouri Puri said the digitalisation of the tax administrations and continued focus on formalisation of the economy have contributed to higher tax compliance rates.
"This should give the Government some headroom to rationalise tax rates. Certainty around tax treaty application will be key to ensure ease of doing business in India. The expectation for 2024 would be for the Government to continue to streamline direct tax provisions to enhance tax certainty," Ms. Puri added.
Deloitte India Partner (Direct Tax) Rohinton Sidhwa said the full Budget is likely to focus on initiatives to tap the China+1 strategy to bolster investment and innovation and also ongoing initiatives to prepare for the World Bank B-READY ranking.
With direct tax collections growing at about 20% so far in the current fiscal (April-March) and GST mop-up scaling a new peak every year, the trend is expected to continue in 2024 on the back of strong economic performance.
The monthly Goods and Services Tax (GST) collection has touched a high of ₹1.87 lakh crore in April 2023. The average gross monthly GST collection in 2023-24 stands at ₹1.66 lakh crore and is 11% more than that in the same period in the previous financial year.
The key take away from the meetings of the GST Council, comprising finance ministers of Centre and states, this year is the clarification on levy of 28% tax on online gaming. The council over the course of two meetings decided to clarify that 28% tax would be levied on the full amount put in at the time of entry into the online gaming platform.
Also, the council decided to make it mandatory for all overseas online gaming companies to register with GST authorities.
GST authorities have issued 71 show cause notices to online gaming companies for alleged GST evasion of over ₹1.12 lakh crore during financial years 2022-23 and 2023-24. Many of these companies have approached high courts seeking a stay on the demand.
INDUSLAW Partner (Indirect Tax) Shashi Mathews said the levy of the highest rate of tax has paused the "meteoric rise" of the online gaming industry".
"It may be expected that the Government will have a re-look at some of these pain points. Some of these issues have also been pending before the courts and one might expect some respite in the form of judgements by the courts. Overall, it will be beneficial for the stakeholders to have a closure on these issues in 2024," Mr. Mathews said.
