Personal Income Tax vs. Corporate Income Tax Collection

  • October 11, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Personal Income Tax vs. Corporate Income Tax Collection

Subject: Economy

Section: Fiscal Policy

Why in news?

  1. Discrepancy in Growth Rates: Recent data from the Central Board of Direct Taxes (CBDT) indicates that personal income tax (PIT) collections have been growing more than twice as fast as corporate income tax (CIT) collections.
  2. Impressive Growth in Direct Tax Collection: As of October 9, gross direct tax collection crossed ₹11 lakh crore, showing an 18% growth. After accounting for refunds, net direct tax collection amounted to ₹9.57 lakh crore, nearly 22% higher than the previous fiscal.
  3. Differential Growth: During this period, net CIT grew by over 12%, while net PIT, which includes Securities Transaction Tax, recorded a growth of around 32%.
  4. Factors Behind Growth: The CBDT attributes this growth in tax collection to three main factors: technological advancements, increased disclosures in returns, and the addition of around 53 lakh new taxpayers in FY23.
  5. Positive Outlook: With collections exceeding 50%, the CBDT expects further acceleration in growth. The government aims to surpass the budget estimates by collecting over ₹18.23 lakh crore in FY24, which requires a 10.5% growth over the Revised Estimate of ₹16.5 lakh crore in FY23.
  6. Resolution for Stuck Refunds: Regarding pending refunds, the CBDT has initiated a demand management facilitation system to address cases where refunds are held up for various reasons, including old demands dating back to 2010-11.
  7. Statistics on ITRs: For the assessment year 2023-24, a total of 7.27 crore Income Tax Returns (ITRs) were filed, with 7.15 crore verified by taxpayers. Out of these, the CBDT has processed 6.80 crore returns.

In summary, personal income tax collections have shown robust growth compared to corporate income tax collections.

Type of Taxes in India – Direct and Indirect Taxes

The types of taxes in India can be categorized into two main categories:

  1. Direct Tax: This tax is levied directly on individuals or entities and cannot be transferred to another party. Examples of direct taxes include:
    • Income Tax: Applied to the income earned by individuals. The tax rates are structured into slabs based on income levels, and higher income corresponds to higher tax liability.
    • Corporate Tax: Applicable to the profits earned by companies from their business operations.
  2. Indirect Tax: Indirect taxes are imposed on the consumption of goods and services rather than directly on income or profit. These taxes can be passed on from one party to another.

With the introduction of the Goods and Services Tax (GST) in India from July 1, 2017, various indirect taxes have been replaced. These include:

  • Service Tax: Applied to certain services.
  • Sales Tax: Imposed on the sale of goods.
  • Value-Added Tax (VAT): Levied at each stage of production and distribution.
  • Central Excise Duty: A tax on the manufacturing or production of goods.
  • Customs Duty: Applied on the import or export of goods.

The GST regime has unified and simplified the taxation system by replacing multiple indirect taxes with different tax slabs for different items. It is important to note that indirect taxes can be shifted from one party to another in the supply chain, which can have an impact on the final consumer.

The Indian government has introduced several significant taxation-related reforms in recent times, which encompass both direct and indirect taxes. Here is a summary of these reforms:

Taxation Reforms in India

Indirect Tax Reforms:

  1. Goods and Services Tax (GST): The implementation of GST involved the integration of state and central indirect taxes, leading to the abolition of entry tax and Central Sales Tax (CST). This move streamlined taxation and reduced trip times on major road corridors, benefiting manufacturers.

Direct Tax Reforms:

  1. Corporate Tax Rate Reduction: The government introduced a historic tax reform through the Taxation Laws (Amendment) Ordinance 2019. It offered a concessional tax rate of 22% for all existing domestic companies from FY 2019-20 if they did not avail specified exemptions or incentives. These companies were also exempted from paying Minimum Alternate Tax (MAT).
  2. Reduction in MAT Rate: The rate of Minimum Alternate Tax (MAT) was reduced from 18.5% to 15%, offering relief to companies that continue to avail exemptions or deductions.
  3. Exemption from Income Tax: The Finance Act, 2019, provided 100% tax rebate to individuals earning taxable income up to Rs. 5 lakh. Additionally, the standard deduction for salaried taxpayers was increased from Rs. 40,000 to Rs. 50,000.
  4. Vivad se Vishwas: The Direct Tax Vivad se Vishwas Act, 2020, was enacted to provide a resolution for pending tax disputes, benefiting both the government and taxpayers.
  5. Faceless E-assessment and Faceless Appeals: These initiatives, introduced in 2019 and 2020, respectively, aimed to eliminate human interface, optimize resources, and enhance efficiency in assessments and appeals.
  6. Simplification of Compliance Norms for Start-ups: Start-ups were provided with simplified assessment procedures, exemptions from Angel Tax, and the establishment of dedicated start-up cells.

These reforms are aimed at streamlining the taxation system, promoting economic growth, and simplifying compliance for taxpayers.

economy Personal Income Tax vs. Corporate Income Tax Collection