Increase in Direct Tax collection

Increase in Direct Tax collection

Why in news?

Net direct tax collections in India rose by 20.25% year-on-year by February 10, showing an improvement from the previous month’s growth rate of 19.4%.


GS-03, GS-02 (Government policies and interventions)

Key highlights:

  • Personal Income Tax (PIT) revenues saw a significant increase of 26.91%, surpassing the growth in Corporate Income Tax (CIT) collections, which rose by 13.6% year-on-year.
  • By February 10, net direct tax collections had reached ₹15.6 lakh crore, accounting for 80.23% of the revised estimates for direct taxes for the fiscal year.
  • Finance Minister Nirmala Sitharaman revised the estimates for direct tax collections in the interim Budget for 2024-25 to ₹19.5 lakh crore, up from the original estimate of ₹18.23 lakh crore for 2023-24.
  • The Ministry of Finance stated that gross direct tax collections were at ₹18.38 lakh crore, representing a 17.30% increase compared to the corresponding period of the previous year. Refunds totaling ₹2.77 lakh crore were issued between April 1, 2023, and February 10, 2024.

What are Direct Taxes?

  • Direct taxes are those levied directly on individuals or organizations by the governing authority.
  • For instance, an individual taxpayer pays direct taxes directly to the government for various purposes, such as income tax, real property tax, personal property tax, or taxes on assets.

What is the Importance of Direct Taxes?

  • Direct taxes, such as income tax and property tax, are imposed directly on individuals or organizations by the government.
  • They ensure fairness in tax distribution based on the principle of ability to pay, thus promoting equity.
  • Direct taxation tends to be progressive, contributing to the reduction of income and wealth inequalities and fostering social equality.
  • These taxes are highly productive and flexible, with revenue adjusting automatically to changes in national income or wealth.
  • Direct taxation offers certainty to taxpayers, minimizes administrative costs, educates citizens about civic responsibility, and aids in anti-inflationary measures by stabilizing price levels.

Types of Taxes:

  • Corporation Tax: This tax is imposed by the government on a company’s profits, calculated after deducting expenses. Different rates apply to domestic and foreign corporations in India.
  • Dividend Distribution Tax (DDT): DDT is levied on the dividends distributed to shareholders by a company. Previously borne by the company, the burden of this tax has now shifted to investors following its abolition in Budget 2020.
  • Minimum Alternate Tax (MAT): Introduced to prevent companies from avoiding tax liabilities through various provisions of the Income-tax Law, MAT ensures that even if a company pays no tax due to deductions or exemptions, it must pay a minimum amount of tax.
  • Security Transaction Tax (STT): This direct tax is imposed on the purchase and sale of securities listed on recognized stock exchanges in India. It is intended to generate revenue from stock market transactions.