October Sees Decline in Corporation and Personal Income Tax Collections

October, traditionally associated with a surge in economic activity due to the festive season, witnessed a surprising decline in direct tax collections. Corporation tax and personal income tax collections fell year-on-year (YoY), indicating economic challenges and changing fiscal dynamics.

Key Highlights from October's Tax Data

1. Corporation Tax

   • Fell 16% YoY to ₹26,356 crore in October.
   • Cumulatively up only 1.2% till October FY25, against the Budget’s projection of a 12% rise for the year.

2. Personal Income Tax

   • Declined 12% YoY to ₹61,937 crore in October.
   • Despite this, it rose 16.8% during April-October FY25, exceeding the Budget’s annual growth projection of 13.6%.

3. Overall Direct Taxes

   • Down 11.9% YoY in October at ₹88,293 crore.
   • Increased 11.1% to over ₹11 trillion during April-October, against a projected 12.8% annual rise.

Comparisons to Previous Year

• In FY24, corporation tax fell 13% in October, while personal income tax rose almost 24% during the same period.
• The timing of Diwali impacted revenue trends, with extended festivities last year.

Indirect Taxes

• Excise Duty

  • Dropped 12% YoY in October, rising only 0.6% during April-October FY25, far below the 4.5% annual growth target.
  • The scrapping of windfall taxes on crude oil, ATF, and fuel exports is expected to further impact excise collections.

• GST Collection

  • Gross GST for November (reflecting October transactions) rose 8.5% YoY to ₹1.82 trillion, but declined from ₹1.87 trillion in October.
  • Net GST mop-up increased 11% YoY to ₹1.63 trillion.

Economic Context

• GDP growth slowed to 5.4% during July-September, the lowest in seven quarters.
• Experts attribute the dip in corporation tax to subdued corporate performance, signaling a cyclical slowdown rather than a structural issue.

Expert Insights

• Economic Slowdown:
  Analysts caution against correlating October’s tax trends solely with the festive season.
  “The small base for corporation tax in October and arrear adjustments can distort YoY growth,” said ICRA Chief Economist.

• Future Outlook:
  With government spending expected to rise in upcoming quarters, tax collections may recover.

This mixed tax collection trend highlights the need for nuanced fiscal strategies as the economy navigates slowing growth and evolving revenue patterns.