Late ITR surge slows direct tax mop-up contraction

Net collection stands at ~6.57 trn, compared with ~7.24 trn a year ago

A surge in filing income-tax returns for the financial year 2019-20 (FY20) before the deadline ended helped narrow the decline in net direct tax collection to 9.2 per cent, giving a bit of cushion to the government’s deteriorating revenue position a fortnight ahead of the Union Budget.

The returns filed crossed 59 million by Sunday, the last day for individuals, compared with 56 million the previous year. Over 3.1 million returns were filed on deadline day for filing ITR for everyone other than companies and tax audit.

Direct tax collections, net of refunds, stood at ~6.57 trillion as on Wednesday, compared with ~7.24 trillion in the corresponding period last year. The contraction in collections has narrowed from the 13 per cent seen on December 16, after the third instalment of advance tax.

The pickup was largely led by information technology hub Bengaluru, which posted an 11 per cent expansion compared with last year, and Jaipur posted a 1 per cent rise in collections. However, important jurisdictions such as Mumbai and Delhi saw declines of six per cent and 19 per cent, respectively.

Refunds contracted by three per cent to ~1.65 trillion during this period, and gross tax collections contracted by eight per cent to ~8.22 trillion. While the direct tax target of ~13.19 trillion might now be impossible to meet, the department is hopeful of matching last year’s collection of ~10.53 trillion, with about ~40,000-50,000 crore expected to come through the Vivad se Vishwas direct tax dispute resolution mechanism window, which closes on January 31. The government had initially expected to collect ~2 trillion from the scheme.

“Collections have picked up pace, in line with the overall economic activity. We hope to match last year’s collection in direct taxes of ~10.53 trillion. It may even be slightly higher, accounting for Vivad se Vishwas scheme collection,” said a government official.

Meanwhile, after granting three extensions in view of Covid-related hardships, the Ministry of Finance has rejected representations asking for further extensions in deadlines for filing returns. The last day for filing returns for companies is February 15 and it is January 15 for tax audit.

“The tax collections assume great significance in these difficult times and the government needs revenue to carry out relief work for the poor and other responsibilities. Any delay in filing returns affects collection of taxes and other welfare functions of the state for the vulnerable and weaker sections of society which is funded through the revenue collected,” the Board had said.

Tax deduction at source, which accounts for 35 per cent of annual collections, has fallen 5-10 per cent across jurisdictions. About 45 per cent of direct tax revenue collection comes from advance tax and the remaining 20 per cent from self-assessment and recovery.

Advance tax collection, including corporation and personal income tax, saw a 33 per cent rise in the third quarter, with a collection of ~1.41 trillion. In the April-december period, advance tax mop up stood at ~2.99 trillion, a six per cent decline year-on-year (YOY), compared with a 25 per cent contraction seen after the second installment in September.