Finance Minister Nirmala Sitharaman, in the Budget for 2025, proposed an increase in direct and indirect tax collections for the upcoming fiscal year starting 1 April. The move to raise tax collection targets reflects optimism for a boost in income and consumption, although the economy is expected to experience its lowest growth in four years this fiscal.
New Delhi aims to raise gross tax revenue to Rs 42.70 lakh crore in the next fiscal, an 11% increase from the revised Rs 38.53 lakh crore targeted for fiscal 2025. The government had previously forecast gross tax revenue of Rs 38.40 lakh crore for this fiscal year.
The Budget now targets Rs 25.20 lakh crore in direct taxes and Rs 17.50 lakh crore in indirect taxes, up from the revised Rs 22.37 lakh crore from direct taxes and Rs 16.16 lakh crore from indirect taxes projected for fiscal 2025.
Income tax collections are forecast to rise by 14.4% to Rs 14.38 lakh crore, while corporate tax is expected to increase by 10.4%, reaching Rs 10.82 lakh crore. This higher tax collection is expected despite the Budget announcing significant tax benefits for the middle class.
As per the changes to the income tax system, individuals earning more than Rs 12 lakh per annum will face no tax on income up to Rs 4 lakh, 5% tax on income between Rs 4 lakh and Rs 8 lakh, 10% on Rs 8 lakh-12 lakh, and 15% on Rs 12 lakh-16 lakh.
A 20% tax will be levied on income between Rs 16 lakh and Rs 20 lakh, 25% on income between Rs 20 lakh and Rs 24 lakh, and 30% on income above Rs 24 lakh per annum. Taxpayers in the new regime with an income of Rs 12 lakh will benefit from a reduction of Rs 80,000, while those earning Rs 18 lakh will benefit from a reduction of Rs 70,000.
In the fiscal 2025 Budget, announced in July last year following the Lok Sabha elections, gross tax revenue for fiscal 2025 was projected to increase by 11.72% from fiscal 2024’s Rs 34.37 lakh crore.
The higher tax revenue in fiscal 2026 will provide the government with a much-needed boost to stay on the fiscal glide path, which is crucial for its pitch to rating agencies for a potential upgrade in sovereign ratings. The increased tax collections will also help the government channel funds into capital expenditure, subsidies, and welfare schemes.
India’s net direct tax collections, comprising corporate tax and personal income tax, rose by around 16% year-on-year to Rs 16.90 lakh crore by 12 January. Net corporate tax collections reached Rs 7.68 lakh crore, up from the same period last fiscal year, while net personal income tax collections surpassed Rs 8.74 lakh crore by April 2024.
The government collected Rs 19.58 lakh crore in net direct taxes in 2023-24, a 17.1% increase compared to the previous fiscal, exceeding revised estimates by Rs 13,000 crore. India had raised Rs 16.64 lakh crore in net direct taxes in FY23 and Rs 14.08 lakh crore in FY22.
Despite a K-shaped economic recovery in India, which some economists consider a strong trend, the country has outpaced nearly all others in terms of rising wealth, according to a Credit Suisse-UBS report.
This wealthier India has also bolstered tax collections and is expected to contribute further, with predictions of a higher number of ultra-high-net-worth individuals and billionaires. In FY23 and FY22, indirect tax collections stood at Rs 13.94 lakh crore and Rs 12.94 lakh crore, respectively.
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