Direct Tax-GDP ratio hits record high of 6.11% in FY23: A look at GST and direct tax collection

By: Team India Tracker

According to the tax administration, the 77.8 million income tax returns filed in FY23 more than doubled the 38 million returns made in FY14.

According to the data released by the Central Board of Direct Taxes (CBDT), India’s direct tax to GDP ratio hit a 15 year high of 6.11 percent in 2022-23. According to the data, direct taxes' share of overall tax collections has returned to pre-pandemic levels. Direct taxes primarily consist of corporation and personal income taxes. Direct tax revenue increased to 54.62 percent of total tax income in 2022–23 from 52.27 percent in 2021–22 and 46.84 percent in 2020–21, the lowest percentage in fifteen years.

According to the tax administration, the 77.8 million income tax returns filed in FY23 more than doubled the 38 million returns made in FY14. In FY23, the cost of collecting direct taxes dropped from 0.57 percent of total taxes collected in FY14 to 0.51 percent due to an increase in the use of technology and data analytics in tax administration.

The other findings of the report shows that Maharashtra accounted for 36.4 per cent (Rs 6.05 lakh crore) of the overall direct tax collections in the country in the financial year 2022-23, followed by Delhi at 13.3 per cent (Rs 2.22 lakh crore), Karnataka at 12.5 per cent (Rs 2.08 lakh crore) and Tamil Nadu at 6.4 per cent (Rs 1.07 lakh crore). In 2022–23, the Center spent Rs 8,452 crore on direct tax collection, an increase from Rs 7,479 crore in 2021–2022. The cost of collection dropped from 0.53 percent of total revenues in 2022–2023 to 0.51 percent in 2022–2023 as a result of increased tax collection efficiency.

The net direct tax revenue in the FY2022-23 was Rs 16.61 lakh crore, compared to Rs 14.12 lakh crore in the preceding FY2021-22, registering an increase of 17.63 percent. The Revised Estimates (RE) were set at Rs.16.50 lakh crore after the Budget Estimates (BE) for Direct Tax income in the Union Budget for FY 2022–23 were revised to Rs.14.20 lakh crore. The provisional Direct Tax collections have surpassed the BE by 16.97 percent and the RE by 0.69 percent (net of refunds).

Before accounting for refunds, the gross direct tax collection (provisional) for the fiscal year 2022–23 was Rs. 19.68 lakh crore, up 20.33 percent from the gross collection of Rs. 16.36 lakh crore in the previous financial year. The gross corporate tax collection (provisional) for the fiscal year 2022–23 is Rs. 10,04,118 crore and has increased by 16.91 percent from the previous year's gross corporate tax collection of Rs. 8,58,849 crore.

According to provisional Direct Tax Collections data for the Financial Year 2023–24, net collections are at Rs. 10.60 lakh crore which is 21.82 percent higher than the net collections for the corresponding period last year. This collection is 58 percent of the total Budget Estimates of Direct Taxes for F.Y. 2023-24. As on November 09, 2023, the Net Direct Tax revenues were Rs. 10.60 lakh crore, while the gross collection was at Rs 12.37 lakh crore, which is 17.59 percent higher than the gross collections for the same period last year.

Source: Reserve Bank of India

The central government’s direct tax collection has increased more than four times in last 12 years. The direct tax collection in the FY2010-11 was Rs 4,45,994 crore this increased to Rs 8,49,713 crore in FY2016-17 and now it has further increased to Rs 16,61,000 crore in FY2022-23. The direct tax collection for the FY2022-23 is record high till date.

A direct tax is one that is paid by an individual or group of individuals directly to the body that levied it. For instance, an individual taxpayer may pay direct taxes to the government for a variety of reasons, such as income tax, real estate tax, personal property tax, or asset taxes. According to the sources from revenue department, the reasons for high tax collection are adoption of digital initiatives aimed at simplifying compliance and expansion of the tax base in recent years

Coming over to GST, the gross GST revenue collected in the month of December 2023 was Rs 1,64,882 crore of which Central Goods and Service Tax (CGST) was Rs 30,443 crore, State Goods and Service Tax (SGST) was Rs 37,935 crore, Integrated Goods and Service Tax (IGST) was Rs 84,255 crore. (Including Rs 41,534 crore collected on import of goods) and cess is Rs 12,249 crore (including Rs 1,079 crore collected on import of goods). December was the seventh month in the year 2023 when the GST collection crossed the mark of Rs 1.60 lakh crore. The revenues for the month of December 2023 are 10.3 percent higher than the GST revenues in the same month last year.

Gross GST collection from April to December 2023 increased by an impressive 12 percent year over year to Rs 14.97 lakh crore, compared to Rs 13.40 lakh crore collected in the same period the previous year (April to December 2022). The first nine months of this year saw an average monthly gross GST collection of Rs 1.66 lakh crore, an increase of 12 percent over the Rs 1.49 lakh crore average during the same time in FY23.

 The GST is a value-added tax applied on the majority of goods and services sold for domestic consumption. Consumers pay the GST, but businesses that provide products and services remit it to the government. GST is levied on the 'supply' of goods or services, as opposed to the prior concept of levy on the manufacture of things, the sale of goods, or the provision of services. The rates of CGST, SGST, and IGST are mutually agreed upon by the Centre and the States. The rates are announced based on the GST Council's suggestion. In May 2015, the GST (122nd Constitutional Amendment) Bill, 2014 was enacted. It was enacted as the Constitution (101st Amendment) Act, 2016, and went into force on September 16, 2016. The GST was implemented on July 1, 2017. 

Source: Ministry of Finance

According to Amit Maheshwari, tax partner at AKM Global, The direct tax-to-GDP ratio which was at 5.62 percent in FY14, steadily rose and touched 6.1 percent in FY23, the highest since financial year 2000-01, the period for which data is readily available. This shows a widening tax base as more economic activities move into the formal sector.