Direct tax collection inches closer to revised Budget target for 2020-21

Robust tax deduction at source (TDS) shored up the overall direct tax mop-up with Bengaluru and Mumbai posting good growth.
Providing comfort to the government on the revenue front amid fiscal stress, direct tax collection is moving closer to the revised Budget target for 2020-21 and may get a further thrust from the last instalment of the advance tax payment, the deadline for which ended on Monday.

The contraction in net direct tax collection narrowed to 5 per cent year-on-year as on March 15 compared to a 9 per cent decline seen in January.

In absolute terms, net collection stood at Rs 8.2 trillion against Rs 8.67 trillion in the same period last year, according to the provisional numbers shared by a government official.

This means that the Central Board of Direct Taxes (CBDT) requires just Rs 84,700 crore to achieve the current fiscal year’s revised Budget target of Rs 9.05 trillion.

In the Budget presented last month, the direct tax collection target for FY21 saw a significant fall from Rs 13.19 trillion estimated earlier in view of the economic impact of the pandemic.

Advance tax collection in 2020-21 after the end of the fourth instalment deadline on Monday was down around 15 per cent against last year, initial trends suggested. However, the final numbers may take a few more days to get collated due to the strike by public sector bank employees, that began on Monday and entered the second day on Tuesday. Hence, advance tax is expected to give a further push to the overall collection.

“Although a substantial sum of advance tax payment comes through private banks, the strike by PSBs definitely has a bearing on the advance tax collection numbers. The number is expected to go up substantially over the next few days as we get final figures from public sector banks. In fact, we have learnt of several people facing difficulties in depositing the tax,” said a government official.

However, robust tax deduction at source (TDS) shored up the overall direct tax mop-up with Bengaluru and Mumbai posting good growth.

The shortfall in advance tax collection had narrowed to 6 per cent in December.

“Achieving the full year’s revised budget target will be possible this year. TDS collection has picked up significantly. Besides, payments under Vivad se Vishwas are expected, providing additional cushion,” said a government official.

Gross collection is down by just 2 per cent on account of 14 per cent growth in refunds over last year.

Gross collection stood at Rs 10.22 trillion on Monday, against Rs 10.44 trillion last year. Refunds are up at Rs 2.02 trillion against Rs 1.78 trillion last year.

Advance tax collection in the top 10 jurisdictions as on Monday evening stood at Rs 3.41 trillion with a contraction ranging between 8 per cent and 51 per cent.

The top four cities -- Mumbai, Delhi, Bengaluru, and Chennai -- reported a contraction of 8 per cent, 21 per cent, 14 per cent, and 18 per cent, respectively.

Bengaluru and Mumbai are the only two jurisdictions posting growth in direct tax-mop up at 11 per cent and 0.2 per cent, respectively.

Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the fiscal year. It gives an indication of economic sentiment. The first instalment is to be paid by June 15 (15 per cent), the second by September 15 (30 per cent), the third by December 15 (30 per cent), and the remaining 25 per cent by March 15.

About 45 per cent direct tax revenue collection comes from advance tax, 35 per cent from tax deducted at source, and the remaining 20 per cent from self-assessment and recovery.

Payment on account of the Vivad se Vishwas —the government’s flagship tax dispute resolution scheme —will further add to the direct tax mop-up this year.

An amount of Rs 54,346 crore has been made to resolve tax disputes worth Rs 98,328 crore by taxpayers till March 1 under the scheme, which ends on March 31.

As many as 128,733 declarations have been filed during the period to settle tax litigation.

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