Bengaluru bucks trend despite Covid-19, sees direct tax mop-up growth

Categories: News
No Comments

In the run-up to the deadline for paying advance tax, India’s Silicon Valley has emerged as the lone bright spot in the direct tax collection trend.

With technology companies largely unaffected by the Covid-19 lockdown, Bengaluru has posted a 7 percent increase in direct tax mop-up, as against a 30 percent decline in the overall collection as of September 2. Bengaluru is the only jurisdiction reporting growth, while others are in deep negative led by Kolkata, which has seen collections decline by 66 percent compared to the same period last year.

Direct tax collection, net of refunds, stood at ~1.9 trillion as of Wednesday, compared to ~2.71 trillion in the same period last year, according to official sources. In order to meet the FY21 Budget target of ~13.19 trillion, set before the pandemic struck, a growth rate of 44.3 percent will be required during the remaining seven months of the fiscal year.

Bengaluru made up 16 percent of the collection, at ~30,000 crore. “Bengaluru is the sole jurisdiction that is showing a positive direct tax growth trend. That may be because it is an information technology hub, which has not been much impacted by the lockdown. In fact, businesses of online platforms have grown during this time. Moreover, these IT players get a lot of business from overseas clients, which diversifies their earnings,” said an official.

Kochi posted a 47 percent decline in collections, followed by Ahmedabad (-46 percent), Chennai (-43 percent), Delhi (38 percent), and Hyderabad (-32 percent). Mumbai witnessed a drop of 20 percent. Gross direct tax collection stood at ~2.9 trillion, 21 percent lower than the ~3.69 trillion collected in the same period last year.

The Income-tax (I-T) department has issued refunds to the tune of ~1 trillion during this period, 2 percent higher than ~98,000 worth of refunds issued in the corresponding period last year. Tax officials are waiting for an official communication on a downward revision in the collection target in view of the sharp economic setback.

India’s economy contracted a record 23.9 percent in the first quarter of 2020-21, indicating the extent of damage caused by the pandemic. The second installment of advance tax is due on September 15. Advance tax means paying tax as and when the money is earned, rather than waiting for the end of the fiscal year. The first installment is to be paid by June 15 (15 percent), second by September 15 (45 percent), third by December 15 (75 percent), and full by March 15.

The I-T department had missed the revised target for direct tax collection for 2019-20 by ~1.17 trillion to stand at ~10.53 trillion, a 7.8 percent fall over the previous year. “Direct tax collection is a function of economic activity. With GDP growth at () 23.9 percent, one can’t expect tax mop-up to show growth. It will be unrealistic. However, officers must be handed out realistic targets to work on and redraft the collection strategy for the fiscal,” said another official.

The direct tax to GDP ratio fell to its lowest in 14 years in 2019-20, at 5.1 percent, while the indirect tax to GDP ratio was at a 5-year low. This was despite the fact that only a week was under the lockdown in the year due to Covid-19. About 45 percent of direct tax revenue collection comes from advance tax, 35 percent from TDS (tax deduction at source), 10 percent from self-assessment, and 10 percent from recovery.

Read More at: