Type: Prelims Only

Introduction

• India’s net direct tax collections have achieved a significant milestone, reaching ₹14.7 lakh crore by January 10, which is over four-fifths of the fiscal year’s target.
• This performance indicates a robust growth of 19.4% compared to the same period in the previous fiscal year, showcasing the country’s strong economic recovery and efficient tax administration.

Overview of Tax Collection Performance

• Total Collections: The net direct tax collections stood at ₹14.7 lakh crore, marking an achievement of 80.61% of the budget estimates for the fiscal year 2023-24.
• Growth Rate: This represents a 19.41% increase over the net collections for the corresponding period of the last year.
• Gross Collection Growth: The gross direct tax collections rose by 16.77% to ₹17.18 lakh crore, with Personal Income Tax (PIT) inflows increasing by 26.11% and Corporate Income Tax (CIT) by 8.32%.

Detailed Analysis of Tax Collection

• Post-Refund Growth: After adjusting for refunds, the net growth in CIT collections was 12.37%, and PIT collections saw a rise of 27.26%.
• Increase in PIT and STT Receipts: Net of refunds, PIT and Securities Transaction Tax receipts were up by 27.22%.

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.

Types of Direct Taxes

The various types of direct tax that are imposed in India are mentioned below:

(1) Income Tax:

• Depending on an individual’s age and earnings, income tax must be paid.
• Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
• The taxpayer must file Income Tax Returns (ITR) on a yearly basis.
• Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.

(2) Wealth Tax:

• The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
• In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
• Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
• Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.

(3) Estate Tax:

• It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.

(4) Corporate Tax:

• Domestic companies, apart from shareholders, will have to pay corporate tax.
• Foreign corporations who make an income in India will also have to pay corporate tax.
• Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India is taxable.
• The below-mentioned taxes are also included under Corporate Tax:

1. Securities Transaction Tax (STT): The tax must be paid for any income that is earned via taxable security transactions.
2. Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
3. Fringe Benefits Tax: For companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
4. Minimum Alternate Tax (MAT): For zero-tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.

(5) Capital Gains Tax:

• It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and homes come under capital assets.
• Based on its holding period, tax can be classified into long-term and short-term.
• Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
• Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

Advantages of Direct Taxes

The main advantages of Direct Taxes in India are mentioned below:

• Economic and Social balance: The Government of India has launched well-balanced tax slabs depending on an individual’s earnings and age. The tax slabs are also determined based on the economic situation of the country. Exemptions are also put in place so that all income inequalities are balanced out.
• Productivity: As there is a growth in the number of people who work and community, the returns from direct taxes also increase. Therefore, direct taxes are considered to be very productive.
• Inflation is curbed: Tax is increased by the government during inflation. The increase in taxes reduces the necessity for goods and services, which leads to inflation to compress.
• Certainty: Due to the presence of direct taxes, there is a sense of certainty from the government and the taxpayer. The amount that must be paid and the amount that must be collected is known by the taxpayer and the government, respectively.
• Distribution of wealth is equal: Higher taxes are charged by the government to the individuals or organizations that can afford them. This extra money is used to help the poor and lower societies in India.

What are the disadvantages of direct taxes?

• Easily evadable: Not all are willing to pay their taxes to the government. Some are willing to submit a false return of income to evade tax. These individuals can easily conceal their incomes, with no accountability to the law of the land.
• Arbitrary: Taxes, if progressive, are fixed arbitrarily by the Finance Minister. If proportional, it creates a heavy burden on the poor.
• Disincentive: If there are high taxes, it does not allow an individual to save or invest, leading to the economic suffering of the country. It does not allow businesses/industries to grow, inflicting damage to them.