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Increase in Direct Tax Collections

Increase in Direct Tax Collections

Why in news?

  • India’s direct tax collections in the first two and a half months (April – June) of 2021-22 stand at nearly Rs. 1.86 lakh crore, which is double the collections over the same period of last year that was affected by the national lockdown.
  • It includes Corporation Tax collections and Personal Income Tax inflows.
  • The increase in the direct tax collections is mainly attributed to healthy exports and a continuation of various industrial and construction activities.
  • It is expected that GDP will record a double-digit expansion in Quarter 1 of 2021-22.

Key Points

  • The fall in the collection of direct taxes is due to a combination of factors, which include the historic tax reforms undertaken in 2019 and much higher refunds issued during the FY 2019-20.
  • Reduction in corporate tax rate for all existing domestic companies:  In order to promote growth and investment, the Government has brought in a historic tax reform through the Taxation Laws (Amendment) Ordinance 2019 which provided a concessional tax regime of 22% for all existing domestic companies from FY 2019-20 if they do not avail any specified exemption or incentive. Further, such companies have also been exempted from payment of Minimum Alternate Tax (MAT).
  • Incentive for new manufacturing domestic companies: In order to attract investment in manufacturing sector, the Taxation Laws (Amendment) Ordinance 2019 has drastically reduced the tax rate to 15% for new manufacturing domestic company if such company does not avail any specified exemption or incentive. These companies have also been exempted from payment of Minimum Alternate Tax (MAT).
  • Reduction in MAT rate: In order to provide relief to the companies which continue to avail exemption/deduction and pay tax under MAT, the rate of MAT has also been reduced from 18.5% to 15%.
  • Exemption from income-tax to individuals earning income up to Rs. 5 lakh and increase in standard deduction: Further, to provide complete relief from payment of income-tax to individuals earning taxable income up to Rs. 5 lakh, the Finance Act, 2019 exempted an individual taxpayer with taxable income up to Rs. 5 lakh by providing 100% tax rebate. Also, to provide relief to the salaried taxpayers, the Finance Act, 2019 enhanced the standard deduction from Rs. 40,000 to Rs. 50,000.
  • In FY 2019-20, the total refunds given was Rs. 1.84 lakh crore as compared to Rs. 1.61 lakh crore in FY 2018-19 which is a 14% increase year-on-year.
  • The tax buoyancy for gross direct tax collection was 1.12, for corporate tax it was around 1 and for personal income tax it was 1.32.
  • The higher growth rate in direct taxes as compared to GDP even in these challenging times proves that recent efforts for the widening of the tax base undertaken by the government are yielding results.                      Increase in Direct Tax Collections

What are Direct Taxes?

  • A type of tax where the impact and the incidence fall under the same category can be defined as a Direct Tax.
  • The tax is paid directly by the organization or an individual to the entity that has imposed the payment.
  • The tax must be paid directly to the government and cannot be paid to anyone else.

Government Initiatives to Improve Direct Taxes

  • The Finance Act, 2020 has provided an option to individuals and co-operatives for paying income-tax at concessional rates if they do not avail specified exemption and incentive for Personal Income Tax
  • Vivad se Vishwas: Under Vivad se Vishwas, declarations for settling pending tax disputes are currently being filed.
  • This will benefit the Government by generating timely revenue and also to the taxpayers by bringing down mounting litigation costs.
  • For widening the tax base, several new transactions were brought into the ambit of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS).
  • These transactions include huge cash withdrawal, foreign remittance, purchase of luxury cars, e-commerce participants, sale of goods, acquisition of immovable property, etc.
  • ‘Transparent Taxation – Honoring The Honest’ platform: It is aimed at bringing transparency in income tax systems and empowering taxpayers.

Important Taxes In India

  • Income Tax
    • Income tax is a direct tax levied on the income of individuals or organizations.
    • When Income tax is levied on individuals, it is called income tax.
    • When income tax is levied on organizations (such as partnership firms, companies, etc.), it is called Corporate Tax.
    • The various types of incomes covered under income tax are as follows:
  • Salary
    • Business or profession profits
    • Rental income from property
    • Gains arising from sale of asset (capital gains)
    • Interest income, etc.
  • Excise Duty
    • Excise duty is an indirect tax levied at the time of manufacture of any product.
    • The manufacturer is liable to pay excise duty when the goods are taken out of premises.
    • Excise duty is no longer applicable from 1 July 2017. It has been replaced by Goods and Services Tax (GST).
  • Customs Duty
    • Customs duty is an indirect tax paid on the import of any product into the country or export of any product from the country.
    • Customs duty has not been replaced with GST. On the other hand, additional customs duty has been replaced by GST. It is over and above the customs duty.
    • It is levied by importing nation to increase the price of an imported commodity when the price is low because exporting nation is providing subsidy on exports.
  • Service Tax
    • Service tax is an indirect tax paid on the sale of services.
    • In the case of goods, there are two separate events of production and sale, whereas in the case of services, the production and sale of services occur simultaneously.
    • In case of goods, excise duty is levied on manufacture, and sales tax is levied on sale of goods.
    • In case of services, single tax is levied, namely, service tax.
    • Service tax is no longer applicable from 1 July 2017. It has been replaced by Goods and Services Tax (GST).
  • Sales Tax or VAT
    • Sales tax is levied on the sale of goods. In India, sales tax on intra-state sale is called value added tax (VAT) and inter-state sale is called the central sales tax.
    • VAT and central sales tax are no longer applicable from 1 July 2017. They have been replaced by Goods and Services tax (GST).

 

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