In a significant development, personal income tax collections in India have exceeded corporate taxes for the first time, indicating a shift driven by digitization, formalization, and increased tax compliance.
Changing Composition of Direct Taxes
- Share of personal income tax in total direct taxes rose from 38.1% to 53.4% between FY14 and FY24.
- Corporate tax share declined from 61.9% to 46.6% during the same period.
Shift in Tax Contribution Patterns
This transformation highlights:
- A widening tax base among individuals.
- Enhanced transparency and monitoring of personal income.
- Improved tracking of undeclared and informal earnings.
The Rise in Taxpayer Base
- India witnessed a significant increase in individual income tax return (ITR) filers from 30.5 million in FY14 to 69.7 million in FY23.
- Integration of digital financial records and simplified filing procedures contributed to this growth.
TDS and Advance Tax as Key Revenue Drivers
- TDS collections more than doubled from Rs 2.5 trillion to Rs 6.5 trillion between FY14 and FY24.
- Advance tax payments rose nearly four times from Rs 2.9 trillion to Rs 12.8 trillion during the same period.
GST’s Role in Strengthening Direct Tax Compliance
- GST significantly improved compliance by creating digital audit trails and enabling cross-verification between GST data and income declarations.
- Active GST taxpayers increased from 12.4 million in 2019 to 14.7 million in 2024.
Rising Salaries and Higher Personal Tax Contributions
- Declared income surged from Rs 9.8 trillion to Rs 35.2 trillion between FY14 and FY23.
- Personal income tax collections increased from Rs 2.4 trillion to Rs 8.3 trillion during the same period.
Direct Tax to GDP Ratio and Global Comparison
- India’s direct tax-to-GDP ratio improved from 3.2% in FY01 to 6.6% in FY24.
- However, only 6.9% of India’s population pays income tax compared to nearly 50% in many developed nations.
Key Takeaways for Competitive Exams
- Personal income tax collections in India have surpassed corporate taxes for the first time due to digitization and increased compliance.
- India’s direct tax structure has witnessed a significant shift towards individual tax contributions, reflecting a more formalized economy.
- Enhanced tax base, rising compliance, and the role of GST have all played crucial roles in this transformation.
