Direct tax mop-up zooms 85% in spite of economic disruption due to Covid-19

Trend in contrast to moderation in GST collections last month

Direct tax collection has nearly doubled this fiscal year so far over the equivalent period in 2020-21 in spite of economic disruption due to the second pandemic wave.

Strong growth is visible as part of the first instalment of advance tax flows in. Also, the trend is in contrast to the moderation in goods and services tax collection seen last month.

Direct tax collection, net of refunds, stood at Rs 1.62 trillion up to June 11 this year against Rs 87,000 crore in the same period last year, posting 85 per cent growth.

Collection is also 33 per cent higher than seen in 2019-20, a normal year, during this period.

Collection this year is rather closer to the realisation seen after the first advance tax instalment (June 15) last year, which stood at Rs 1.68 trillion.

Direct tax collection comprises income tax and corporation tax.

This has perplexed tax officials. While some have attributed it partly to payments from the Vivad se Vishwas (VsV) Direct Tax Dispute Resolution Scheme and lower issuance of refunds, others have put it down to increased compliance and enforcement due to the sharing of GST data with the Central Board of Direct Taxes (CBDT).

Gross collection at Rs 1.93 trillion is 54 per cent higher than last year. However, refunds are 17 per cent lower at Rs 31,000 crore against Rs 37,300 crore.

Collection in Mumbai grew nearly 80 per cent to Rs 48,000 crore from Rs 27,000 crore last year during this period.

Delhi has seen a 67 per cent jump to Rs 20,000 crore from Rs 12,000 crore last year. Chennai and Pune have posted an expansion of 120 per cent and 150 per cent, respectively, to Rs 11,000 crore and Rs 10,000 crore, respectively.

Advance tax for the first instalment needs to be paid by June 15. Fifteen per cent of the full year's advance tax due has to be paid in Q1, 25 per cent each in Q2 and Q3 and 30 per cent in Q4. 

The CBDT received Rs 54,005 crore from the VsV Scheme till March and the government was expecting another Rs 20,000 crore by April 30. However, the date of payments was extended to June 30 in a notification last month in view of the challenges arising due to the second pandemic wave.

Experts, however, pointed at the healthy exports trend and cost-cutting by companies to explain the surge in direct taxes. Some tax consultants are highlighting that economic activities have not been affected as much as last year, resulting in higher collections.

Aditi Nayar, chief economist, ICRA Ratings, said: “It is unclear whether healthy exports and continued cost cutting can support such a jump in corporate taxes in the light of the disruption caused by the second Covid-19 surge.”

GST collection moderated to an eight-month low in May at Rs 1.02 trillion.

India’s merchandise exports in May grew by 67.39 per cent at $32.21 billion over the same month last year and by 195.72 per cent in April at $30.63 billion.

Rakesh Nangia, managing partner, Nangia Anderson LLP, said the refunds issued by the department appeared much lower than last year at the same time.

“The government has got some payments from the VsV Scheme as well, which may have added to the mop-up. Moreover, economic activity is not as affected as it was last year due to the national lockdown,” said Nangia.

The Budget has estimated revenues from direct taxes at Rs 11.08 trillion, which will need a growth rate of 17 per cent over the 2020-21 actuals. Last year, the direct tax mop-up at Rs 9.47 trillion was 9.7 per cent lower than the previous year, but exceeded the revised estimates, which stood at Rs 9.05 trillion.