'High taxation...': Analyst compares growth of direct tax vs corporate taxes 

Direct tax vs corporate tax: India has witnessed an increase in direct taxes, which encompass taxes on income (income tax) and corporate tax. In the realm of direct taxes, individual income tax has surpassed corporate taxes in the fiscal year 2022-2023, with individuals, predominantly from the middle class, contributing more to taxes than corporations.

Sandip Sabharwal, Research Analyst, Equity Investing, in a post on X, noted that in the present financial year, corporate taxes grew 8%, while non-corporate entities as well as individual taxes grew 21%.

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"Latest Direct Tax data out today shows Corporate Taxes +8%; Non Corporate plus Individual +21%. Individuals are bearing the burden of High taxation. It's time to moderate taxes significantly to revive consumption," Sabharwal wrote.

Not just Sabharwal, many experts and industry bodies have said that FM Nirmala Sitharaman should consider reducing personal income tax rates in the Union Budget 2025.

Tax collection

India's net direct tax revenues saw a 15.88% increase to Rs 16.90 lakh crore between April 1, 2024, and January 12, 2025, as per the latest data from the Income Tax department. This growth surpasses the figures from the previous fiscal year. 

During the period, personal income tax collections saw a significant increase of 21.6% to reach Rs 8.74 lakh crore from Rs 7.2 lakh crore in the previous year. Corporate tax collection also experienced growth, rising by 8.12% to Rs 7.7 lakh crore compared to Rs 7.10 lakh crore in the same period of 2023-24.

Additionally, the Securities Transaction Tax (STT) collection, a component of direct tax, saw a notable surge of 75% to reach Rs 44,500 crore during this period, up from Rs 25,415 crore in the corresponding period of the previous year.

The current data of the Income Tax department suggests that the net direct tax collection is likely to exceed budget estimates by around Rs 73,000-83,000 crore, mainly propelled by strong growth in non-corporate tax. However, it is anticipated that tax buoyancy will be lower compared to the previous fiscal year due to the revision of the nominal growth number.

The Union Budget for the fiscal year 2024-25 outlined a target of Rs 22.07 lakh crore for net direct tax collection, representing a growth rate of 12.6% from the actual collection of Rs 19.60 lakh crore in FY 2023-24. Data up to December 17, 2024, indicates that while the advance tax mop-up has increased by over 20%, the net collection currently stands at 72% of the budget estimates. This performance has raised optimism about exceeding the target significantly.

Corporate tax vs individual tax

Assocham in its Budget note said there is a notable contrast between personal and corporate tax rates. The industry body emphasised in a communication to the Finance Minister that corporate tax rates have steadily declined, resulting in a growing disparity between personal and corporate taxes. As per Assocham's data, the peak marginal rate for individuals has now escalated to 42.74% in the highest bracket and 39% in the latest tax regime, compared to the standard corporate tax rate of 25.17%.

"As corporate tax rates have become competitive on a global scale, in order to promote greater tax compliance among individuals, Assocham recommends a similar reduction in personal tax rates," Assocham stated.

The current personal income tax rates in India are considerably higher than those in other countries. For instance, Hong Kong has a maximum rate of 15%, Sri Lanka 18%, Bangladesh 25%, and Singapore 22%. This disparity in tax rates between individuals and corporations has prompted many individuals to restructure their businesses towards the corporate model, such as transitioning from a proprietorship to a company.

According to Assocham, the highest marginal tax rates for individuals are 42.744% under the old tax regime and 39% under the new tax regime, both significantly higher than corporate tax rates and those in neighboring countries.

“With two tax regimes in place, income tax for individuals has become very complicated. Further, there are different rates of taxes depending upon the source of income.  In addition to this, different rates of surcharge are applicable depending upon the total income and capital gains element in the total income both under the old and new tax regime,” it says. 

Budget 2024 introduced a modest relief for the salaried middle class by raising the standard deduction in the new tax regime from Rs 50,000 to Rs 75,000. This adjustment is estimated to leave approximately Rs 17,500 more in the pockets of the general populace.

In countries like the United States, income tax exceeds corporate tax due to a broader tax base. In the US, 43% of the population pays taxes compared to just 2% in India.