India’s direct tax collections hit record high – Numbers don’t lie

24 January 20246 mins read by Angel One

The nation's record-breaking direct tax-to-GDP ratio, impressive growth in collections, and the strategic use of technology. From surging income tax returns to reduced collection costs.

India’s direct tax collections hit record high – Numbers don’t lie

In a recent revelation by the Central Board of Direct Taxes (CBDT), India’s direct tax-to-GDP ratio hit an unprecedented high of 6.11% at the end of the fiscal year 2023 (FY23). This milestone, accompanied by a significant drop in collection costs, reflects a remarkable feat for the nation’s fiscal landscape.

Setting Records Straight

The direct tax-to-GDP ratio has reached new heights, surpassing its previous peak of 6.3% in 2007-08. This marks the third instance in the last 22 financial years that the ratio has breached the coveted 6% threshold, signalling a robust fiscal performance.

Behind the Numbers

According to the Asian Development Bank (ADB), the tax-to-GDP ratio is a crucial indicator of a country’s tax revenue as a percentage of its Gross Domestic Product. This ratio serves as a measure of the government’s control over the economy’s resources, showcasing its ability to harness funds through taxes.

NACIN’s Insight

A research paper by the National Academy of Customs, Indirect Taxes and Narcotics (NACIN) sheds light on a broader trend. As countries become wealthier, there is a proportional increase in the overall level of taxation, aligning with Wagner’s law. This law suggests that a government’s size, as indicated by the tax and expenditure share to GDP, rises alongside the country’s income levels.

Numerical Data

*Direct tax to GDP ratio*	*Cost of direct tax collection*
FY	Tax-GDP ratio (in %)	Buoyancy factor	Collection (incr)	Expenditure (incr)	Cost of collection
2014-15	5.55	0.86	6,95,792	4,101	0.59
2015-16	5.47	0.8	7,41,945	4,593	0.61
2016-17	5.53	1.1	8,49,713	5,578	0.66
2017-18	5.86	1.59	10,02,738	6,087	0.61
2018-19	6.02	1.29	11,37,718	7,074	0.62
2019-20	5.23	-1.21	10,50,681	6,952	0.66
2020-21	4.78	NA	9,47,176	7,223	0.76
2021-22	5.97	2.52	14,12,422	7,479	0.53
2022-23	6.11	1.18	16,63,686	8,452	0.51

Impressive Growth in Direct Tax Collections

The time series data released by CBDT reveals a staggering growth of over 160% in net direct tax collections between FY14 and FY23, reaching a substantial Rs 16.64 lakh crore in FY23. This surge is attributed to the parallel growth in nominal GDP, which expanded by approximately 140%, thereby boosting the direct tax-to-GDP ratio.

Surging Income Tax Returns

In FY23, the total number of Income Tax Returns (ITR) filed stood at a remarkable 7.78 crore, showcasing a remarkable 104% growth compared to the 3.80 crore ITRs filed in FY14. In the current fiscal year, the momentum continues, with the number of returns already crossing the 8 crore mark.

Cost of Collection Takes a Dip

Remarkably, the cost of tax collection has witnessed a decline, reaching 0.51% in FY23, down from 0.57% in FY24. Officials attribute this reduction to improved tax administration and the strategic integration of technology, allowing for increased collections at a lower operational cost.

A Technological Boost

The success in tax collection is not only about the numbers but also about leveraging technology for better efficiency. The use of advanced tools in tax administration has played a pivotal role in enhancing collection rates while simultaneously reducing operational costs.

Encouraging Current Fiscal Trends

The most recent data indicates a promising trajectory in the current fiscal year. The CBDT’s statement reveals that direct tax collections, net of refunds, have already reached Rs 14.70 lakh crore, marking a remarkable 19.4% growth compared to the corresponding period in the previous year. This collection represents a substantial 80.6% of the total Budget Estimates for direct taxes in FY24.

Conclusion

India’s direct tax landscape is witnessing a period of unprecedented success, with record-breaking ratios, substantial growth in collections, and a commendable rise in the number of filed income tax returns. As the current fiscal year progresses, the nation is poised to exceed budget estimates, showcasing a robust and optimistic financial outlook.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.