Bengaluru bucks trend, sees tax mop-up growth

In the run-up to the deadline for paying advance tax, India’s Silicon Valley has emerged as the lone bright spot in the direct tax collection trend.

With technology companies largely unaffected by the Covid-19 lockdown, Bengaluru has posted a 7 per cent increase in direct tax mop-up, as against a 30 per cent decline in the overall collection as of September 2.

Bengaluru is the only jurisdiction reporting growth, while others are in deep negative led by Kolkata, which has seen collections decline by 66 per cent compared to the same period last year.

Direct tax collection, net of refunds, stood at ~1.9 trillion as of Wednesday, compared to ~2.71 trillion in the same period last year, according to official sources. In order to meet the FY21 Budget target of ~13.19 trillion, set before the pandemic struck, a growth rate of 44.3 per cent will be required during the remaining seven months of the fiscal year.

Bengaluru made up 16 per cent of the collection, at ~30,000 crore. “Bengaluru is the sole jurisdiction that is showing a positive direct tax growth trend. That may be because it is an information technology hub, which has not been much impacted by the lockdown. In fact, businesses of online platforms have grown during this time. Moreover, these IT players get a lot of business from overseas clients, which diversifies their earnings,” said an official.

Kochi posted a 47 per cent decline in collections, followed by Ahmedabad (-46 per cent), Chennai (-43 per cent), Delhi (38 per cent) and Hyderabad (-32 per cent). Mumbai witnessed a drop of 20 per cent.

Gross direct tax collection stood at ~2.9 trillion, 21 per cent lower than the ~3.69 trillion collected in the same period last year.

The Income-tax (I-T) department has issued refunds to the tune of ~1 trillion during this period, 2 per cent higher than ~98,000 worth of refunds issued in the corresponding period last year.

Tax officials are waiting for an official communication on a downward revision in the collection target in view of the sharp economic setback.

India’s economy contracted record 23.9 per cent in the first quarter of 202021, indicating the extent of damage caused by the pandemic.

The second instalment of advance tax is due on September 15. Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the fiscal year.

The first installment is to be paid by June 15 (15 per cent), second by September 15 (45 per cent), third by December 15 (75 per cent), and full by March 15.

The I-T department had missed the revised target for direct tax collection for 2019-20 by ~1.17 trillion to stand at ~10.53 trillion, a 7.8 per cent fall over the previous year.

“Direct tax collection is a function of economic activity. With GDP growth at () 23.9 per cent, one can’t expect tax mopup to show growth. It will be unrealistic. However, officers must be handed out realistic targets to work on and redraft the collection strategy for the fiscal,” said another official.

The direct tax to GDP ratio fell to its lowest in 14 years in 2019-20, at 5.1 per cent, while the indirect tax to GDP ratio was at a 5-year low. This was despite the fact that only a week was under the lockdown in the year due to Covid-19.

About 45 per cent of direct tax revenue collection comes from advance tax, 35 per cent from TDS (tax deduction at source), 10 per cent from self-assessment, and 10 per cent from recovery.