Direct Tax Collections to Surpass Budget Estimates by ₹73,000–83,000 Crore Despite Decline in Tax Buoyancy
By: Admin
Date: January 13, 2025
Category: Tax News
Reading Time: 4 Minutes
Net direct tax collections for FY 2024-25 are on track to exceed the budget estimate by ₹73,000–83,000 crore. This impressive performance is fueled by robust growth in non-corporate tax collections. However, a downward revision in nominal growth projections is expected to lower tax buoyancy.
Exceeding Budget Targets
The Union Budget set a target of ₹22.07 lakh crore for net direct tax collections in FY 2024-25, requiring a 12.6% growth over the previous fiscal’s ₹19.60 lakh crore collection. The following developments highlight the progress:
- April–December 2024: Net collections have already reached 72% of the budget target.
- Advance Tax Growth: Payments after three installments grew by over 20%, with corporate advance tax payments increasing by 16%.
This strong performance, combined with healthy Goods & Services Tax (GST) collections, is likely to reduce the fiscal deficit below the estimated 4.9%.
Factors Driving Growth
1. Ease of Compliance and Technology Adoption
Simplified tax rules and technological advancements have made compliance easier, encouraging timely payments.
2. Higher Individual Incomes
Rising incomes have resulted in increased tax contributions by individuals.
3. Efficient Tax Administration
- The cost of collection has fallen from 0.76% in FY21 to 0.44% in FY24.
- The formalization of the economy and improved compliance tools have enhanced tax administration efficiency.
Tax Buoyancy Challenges
Despite higher collections, tax buoyancy—the responsiveness of tax revenue to GDP growth—faces challenges due to revised growth estimates:
- Revised Nominal GDP Growth: The Statistics Ministry reduced its first advance estimates to ₹324.11 lakh crore from the budgeted ₹326.36 lakh crore.
- Projected Tax Buoyancy:
- FY 2024-25: Estimated at 1.68–1.73.
- FY 2023-24: Higher at 1.86.
A decline in tax buoyancy indicates slower revenue growth relative to the economy and tax policy changes. Although collections remain strong, this trend suggests limited responsiveness to GDP growth.
Future Outlook
Experts believe that sustained efforts to simplify tax rules, broaden the tax base, and enhance compliance will ensure continued revenue growth. Additionally, with the lower cost of collection and greater efficiency, the government is well-equipped to meet fiscal targets.
The impressive performance in direct tax collections provides a positive outlook for fiscal management, even as tax buoyancy shows signs of slowing. The upcoming Budget will reveal how the government plans to address this balance and sustain the momentum in revenue growth
Conclusion
The impressive performance in direct tax collections provides a positive outlook for fiscal management, even as tax buoyancy shows signs of slowing. The upcoming Budget will reveal how the government plans to address this balance and sustain the momentum in revenue growth.
