Contraction in direct tax collection eases

At 23%, decline in mop-up was slightly better than 30% seen a fortnight ago, provisional data shows

The rate of contraction in direct tax collection has reduced, thanks to the payment of the second instalment of advance tax, indicating a gradual revival of economic activity in some sectors in the current quarter.

Direct tax collections, net of refunds, declined by 22.6 per cent year-on-year (YOY) as of September 15, compared to a 30 per cent contraction till September 2. The decline in gross direct tax collections slowed to 16 per cent from the 21 per cent reported about a fortnight ago. Although the deadline for paying the second instalment of advance tax ended on Tuesday, the final numbers are yet to be collated and updated by banks. The final figures might show further easing in contraction.

Net direct tax collection stood at ~2.53 trillion as of September 15, down from ~3.27 trillion a year ago, according to provisional numbers shared by a government official. Refunds are marginally higher at ~1.04 trillion, as

against ~1.01 trillion the previous year.

Advance tax is tax paid as and when the money is earned, rather than at the end of the fiscal year. This is seen as an indicator of economic sentiment.

The first instalment is to be paid by June 15 (15 per cent), second by September 15 (30 per cent), third by December 15 (30 per cent) and the remaining 25 per cent by March 15.

“These are provisional numbers and will likely be revised in a day after banks update the final data. Certainly, the overall numbers are showing a bit of an improvement in the trend, as the second quarter saw revival in economic activity with the unlocking process picking pace,” said a government official. Bengaluru continued to be the only city to record growth in tax collection, the official said. The city saw 10 per cent growth in direct tax collection by September 15 at ~41,000 crore, as against ~37,000 crore the previous year.

“Most IT companies have gained due to the lockdown, with online transactions seeing a rise. Besides, their operations were unaffected because of work from home. Moreover, these IT players get a lot of business from overseas clients, which diversifies their earnings,” said the official.

Mumbai saw direct tax collection dip by 13.9 per cent to ~75,000 crore as of September 15, from ~86,000 crore a year ago. Delhi and Chennai were deep in negative territory with declines of 33 per cent and 37 per cent, respectively. Pune posted a 30 per cent contraction in collection and Hyderabad was down by 24 per cent.

In 2019-20, the income tax department missed the reduced direct tax collections target by ~1.17 trillion, mopping up ~10.53 trillion, a 7.8 per cent fall over the previous year.

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