India's personal income tax collections emerged as a critical driver of government revenues in the first half of fiscal 2025, counterbalancing subdued growth in corporate tax and other indirect tax components due to a slowing economy and reduced corporate earnings.
An analysis by the Controller General of Accounts (CGA) for the April-September 2024 period reveals a 12% year-on-year rise in gross tax revenue, reaching ₹18.1 lakh crore. Notably, income tax revenues surged by 25% to ₹5.6 lakh crore, outperforming the 13.6% budgeted growth rate for FY25. This growth was attributed to a broader tax base and improved compliance mechanisms.
In contrast, corporate tax collections, at ₹4.6 lakh crore, grew by a modest 2.3% year-on-year, falling short of the budgeted 12% growth. GST collections grew 10.4%, while excise duty and customs duty saw tepid growth at 3% and 6.4%, respectively.
Revenue Performance Against Budget Targets
The gross tax revenue for the first half of FY25 stood at 47.2% of the budgeted target. However, corporate tax and excise duty revenues lagged, achieving only 45.2% and 40.3% of their respective targets. Customs duty exceeded expectations, growing beyond the budgeted 2%, while GST collections slightly underperformed relative to budget projections.
Factors Influencing Revenue Trends
- Corporate Tax: A slowdown in economic activity weighed heavily on corporate earnings, limiting corporate tax contributions. However, the Income Tax Department reported a rebound in gross corporate tax collections, which grew by 18% year-on-year to ₹6.6 lakh crore as of November 10, 2024.
- Customs Duty: Analysts cited duty-free imports and free trade agreements (FTAs) as factors dampening customs revenue. A significant reduction in customs duty on gold further impacted collections, aligning with the conservative growth estimates in the Union Budget.
- Excise Duty: Seasonal declines in diesel consumption during July and August were identified as a key factor behind the 3% growth in excise duty.
Economic Outlook and Fiscal Impact
Despite the economic slowdown, the Union government’s fiscal deficit is projected to be 19 basis points lower than the budgeted deficit for FY25, according to a note by India Ratings. Gross tax revenue as a percentage of GDP is also expected to exceed budget estimates by 28 basis points. Income tax and corporate tax are anticipated to contribute significantly, accounting for 80.94% and 10.53%, respectively, of the additional gross tax revenue.
Capex Plans and Future Growth
The government’s ambitious capital expenditure target of ₹1.1 lakh crore for FY25 remains on track, signaling confidence in economic recovery during the second half of the fiscal year. Analysts are optimistic that improved corporate performance in H2FY25 will support overall revenue growth.
In summary, robust income tax collections have helped mitigate the impact of an economic slowdown on India’s fiscal health, underscoring the importance of sustained compliance and a broadening tax base for long-term revenue stability.
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