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Informist, Tuesday, Jan. 28, 2025

 

By Priyasmita Dutta

 

NEW DELHI – The Union Budget may project an 11.1% growth in total tax collections in 2025-26 (Apr-Mar) from the revised estimate for FY25, with personal income tax seen driving collections. Gross tax collections in FY26 are likely to be projected at INR 42.44 trillion, according to an average of reports by six economists. While this is 10.5% higher than the FY25 budget estimate of INR 38.40 trillion, a minor shortfall in collections is expected this year, resulting in an 11.1% growth compared with the revised estimate.

 

The government's total tax collection in FY25 is seen at INR 38.20 trillion, INR 200 billion lower than the Budget estimate. As per the latest data, the gross tax revenue in Apr-Nov was at INR 22.61 trillion, or 59% of the full year's target. While total collections were up 10.7% on year, slightly lower than the Budget projection of 10.8%, corporate tax collections were down 0.5%. Revenue from income tax was 23.5% higher. Dharmakirti Joshi, chief economist at CRISIL, said the solid growth in income tax could be due to the government plugging loopholes.

 

"In FY26, corporate profitability could improve due to softer global commodity prices, although depreciation in the rupee could limit the gains. Overall, we expect the government to budget corporate tax collection at INR 10.1 trillion in FY26, a tad lower than BE FY25. It could also pencil robust growth in income tax collection due to an expected uptick in wage growth, and the increasing number of tax filers due to better compliance and formalisation. Overall, we expect direct tax growth to be budgeted at 14.7%, implying a direct tax buoyancy of 1.2 in FY26," ICICI Bank economists said in a note.

 

According to the median of the estimates, the Budget is likely to project income tax collections for FY26 at INR 13.94 trillion, which will be 17.4% higher than the likely revised estimate of INR 11.87 trillion for FY25. Corporate tax collections are seen growing just 4.2% to INR 10.63 trillion in FY26.

 

WEAKENING INDIRECT COLLECTIONS

On the indirect side, Goods and Services Tax collections in FY26 are seen growing broadly in line with the nominal GDP growth of around 10.5% that the Budget may assume. However, economists warn of some weakness in the overall indirect tax mop-up, with the median of estimates suggesting it might be pegged at INR 17.48 trillion, up 7.0% from the FY25 budget estimate.

 

"The buoyancy of indirect taxes led by GST has shown impressive growth in the last three years. However, for FY25, GST collections have been losing momentum, despite showing a strong surge in e-waybills. This signals a slowdown in discretionary spending, and without a revival in consumption momentum, GST collections growth is set to normalise to mid-single-digit growth," said Rahul Bajoria, India and ASEAN Economist at BofA Securities.

 

Gross GST collections in Apr-Dec grew 9.1% on year.

 

Besides GST, economists expect excise duty collections to fall in FY26 due to the removal of windfall gains tax on domestic petroleum crude production and exports of aviation turbine fuel, petrol, and diesel in December. However, there is uncertainty about revenue from customs duties, with Barclays' economists noting that these announcements will be "pivotal to understand the government's response to tariffs under Trump 2.0".  End

 

Edited by Saji George Titus

 

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