In the Indian Union Budget 2021-22, direct tax collection’s projected growth for FY22 would be achieved on the back of expansion of tax base without having to put any additional burden on the taxpayers, Finance Secretary Ajay Bhushan Pandey has said. The budget has estimated that the combined revenue from corporate and personal income taxes would rise by 22.4% to Rs 11.08 lakh crore in the next fiscal.
The budget estimates for the next fiscal have pegged gross tax revenue growth at 16.7% with a buoyancy of 1.2. The collections have contracted in the last two years — by 3.4% in FY20 and a likely 5.5% (RE) in the current fiscal.
Pandey said about the concern that the introduction of Agriculture Infrastructure and Development Cess (AIDC) would further squeeze states’ share of the union government’s tax revenue from the divisible pool that a dedicated fund was needed for improving agriculture infrastructure and it had been done by sacrificing the Centre’s own revenue by cutting additional excise duty. “We have shown in the case of GST that the revenue collections improve along with a general level of compliance, and the same is likely to be mirrored in the direct tax mop-up next year,” Pandey said. He additionally has the charge of revenue secretary.
The GST collection in the first six months of the fiscal (April-September) shrank about 24% on the year but has grown by 8% in the subsequent four months.
On direct taxes, the collection till the end of January was lower by 6.7% compared to the same period a year ago.
The finance secretary said that the budget had proposed several targeted measures to plug evasion and improve compliance. “We have used the tax deducted at source (TDS) mechanism selectively, and in combination with data from various sources, including banks, mutual funds, stock market and property transactions, we have analysed and identified outliers against whom enforcement action is initiated,” Pandey said.
The secretary said that the method ensures that the large section of taxpayers remain unaffected while the outliers are targeted made possible by the department’s technological capability.
Out of the measures to improve compliance, the budget has proposed to levy higher TDS amount on those not filing income-tax returns. Further, the Budget has also tried to plug avenues of tax savings for high net-worth individuals by making investment instruments like ULIPs and Provident Fund taxable if the annual contribution is higher than Rs 2.5 lakh.
Pandey said that the budget proposal of setting up dispute resolution mechanism for smaller taxpayers with less than Rs 10 lakh tax demand and making the Income Tax Appellate Tribunal (ITAT) faceless would ease compliance and make the tax administration efficient, eventually leading to higher revenue growth.
Pandey said, referring to clarifications issued in the budget related to equalisation levy on digital transactions involving Indian customers and non-resident companies, the aim was to make clear that if any digital transaction was taxable under income tax laws then the companies would have to pay the same instead of choosing between paying income tax and equalisation levy.
Last year’s budget had proposed a 2% equalisation levy on non-resident internet companies providing services in India.
The finance secretary added that while the government would keep an eye on inflation, a possibility on the back of higher spending planned for next fiscal, the belt-tightening for the next fiscal was not an option, given that the economy needed the virtuous cycle of growth to start.