With strong growth in non-corporate tax, net direct tax collection is likely to cross budget estimates by more than ₹73,000-83,000 crore. However, tax buoyancy is likely to be lower than the last fiscal due to the revision of the nominal growth number.

The Union Budget presented in July pegged the net direct tax collection at ₹22.07 lakh crore for the fiscal year 2024-25. This requires a growth rate of 12.6 per cent over the actual collection of ₹19.60 lakh crore in FY 2023-24. However, data for the period between April 1 and December 17, 2024, showed that while the mop-up through advance tax after three instalments grew by over 20 per cent, the net collection is now 72 per cent of the budget estimates. This has boosted expectations about exceeding the target by a notable margin. This, along with good growth in Goods & Services Tax (GST), is expected to help the government push the fiscal deficit lower than the budgeted estimate of 4.9 per cent for the current fiscal.

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Though the Income Tax Department has not given any reasons for the rise in collections, it is believed that the ease of compliance and the use of technology have aided the exercise. At the same time, the rise in incomes has also facilitated higher income tax payments by individuals. Notwithstanding the pressure on companies’ profitability, advance tax payments by corporations recorded over 16 per cent growth.

“The hope is that the government’s continued efforts to simplify tax rules, enhance tax compliance, and widen the tax base will contribute to higher tax collections,” said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co. With the rise in collections, the cost of collection is on a downward trend. It dipped to 0.44 per cent in FY24 from 0.76 per cent in FY21. “This could be attributed to a notable increase in the efficiency of the Indian tax administration, the formalization of the economy, and the deployment of technological tools for securing tax compliance,” Puri said.

• Also read: Net direct tax collections jump 16% by November 17; STT exceeds budget estimates

Tax buoyancy

As the government’s Statistics Ministry has revised the nominal growth downward in the first advance estimates to ₹324.11 lakh crore from ₹326.36 lakh crore in the budget, tax buoyancy is likely to be affected even with higher collections. According to an International Monetary Fund (IMF) working paper by Paolo Dudine and Joao Tovar Jalles, tax buoyancy is a measure of the responsiveness of tax revenues to growth in nominal GDP and discretionary changes in tax policies. It is the ratio of the percentage change in gross tax revenue to the percentage change in Gross Domestic Product (GDP) over the previous year.

Based on the possible collections, tax buoyancy could be in the range of 1.68–1.73 in FY25, as against 1.86 in FY24.