Gross direct tax may surpass Budget by over Rs 1 trillion

India's Direct Tax Revenues Set to Outperform Expectations, Bolstering Fiscal Resilience in Post-Pandemic Era

In a surprising turn of events, India's direct tax receipts are poised for a robust performance for the third consecutive year since the pandemic's onset, offering a much-needed financial cushion to the government. Despite anticipated additional spending on critical sectors such as food, fertilizers, and job guarantee programs, coupled with a lower-than-expected growth in nominal GDP, the Centre is optimistic about maintaining the fiscal deficit within the targeted limit.

Official sources indicate that the Centre's gross direct tax collections, after accounting for refunds but before devolution to states, could surpass the budget estimate by a staggering Rs 1 trillion in the fiscal year 2023-24. According to estimations by financial experts, the Centre's direct tax revenue, before transfers to states, may exceed the budget estimate by an even greater margin, reaching up to Rs 1.3 trillion, providing the government with an additional Rs 0.8 trillion on a net basis.

While the aggregate indirect tax revenues appear to be on track, with the assumption of no cuts in excise duty on petrol and diesel leading up to the general elections, there remains a possibility of meeting or marginally falling short of the targeted budget estimate for indirect taxes in FY24.

Despite the reassuring prospect of additional direct tax revenues, a senior official has cautioned that there are still four months remaining in the fiscal year, leaving room for unforeseen expenses, particularly in welfare schemes ahead of the upcoming general elections in April.

Finance Minister Nirmala Sitharaman has recently urged tax officers to sustain the growth in direct tax collections at around 17% in FY24, mirroring the achievements of the previous financial year. This ambitious target would result in direct tax receipts surpassing the budget estimate by Rs 1.27 trillion, reaching Rs 18.23 trillion for FY24.

As of November 9, official data reveals that direct tax collections stand at Rs 10.6 trillion, indicating a substantial 21.82% increase compared to the corresponding period in the previous year. This collection represents 58.15% of the budget estimate for FY24 and is expected to be 9.4% higher than the collections in FY23.

In the preceding fiscal year (2022-23), the Centre's direct tax collections reached Rs 16.67 trillion, surpassing the FY23 budget estimate by Rs 2.47 trillion or 17.4%, as well as exceeding the FY22 actuals of Rs 14.2 trillion.

With non-tax revenues anticipated to exceed the FY24 budget estimate by over Rs 60,000 crore and savings under various centrally sponsored schemes and central sector schemes, the government finds itself well-equipped to meet additional expenses in existing or new schemes without breaching the fiscal deficit target of 5.9% for the current financial year. The Centre's fiscal deficit for the first seven months of the current financial year stood at 45% of the budget estimate, showing a slight improvement from the year-ago period, primarily attributed to a 15% decline in capital and revenue expenditure in October.