Union Budget 2024: Direct taxes vs indirect taxes. What did FM Sitharaman say about tax collection

Last week, the Income Tax (I-T) department released the data of net direct tax collection for FY 2024-25. It mentioned that the collection rose to Rs 5.74 lakh crore till July 11, 2024, which is a jump of 19.54% over the last fiscal. The gross collection of direct tax rose to Rs 6.45 lakh crore, which is about a jump of 23.24%.

Income tax refunds stood at Rs 70,902 crore, a figure 64.49% higher than the corresponding figure in fiscal 2024. The tax refunds stood at Rs 43,105 crore in FY24, which highlighted the government's efficiency in processing claims and providing timely relief to taxpayers.

The net direct tax collection stood at Rs 4.80 lakh crore in FY24 during the same period, marking a growth in direct tax collections in the past one year.

The total gross direct tax collection for the fiscal year 2025 experienced a notable increase of 23.24% to reach Rs 6,45,259 crore, compared to the previous fiscal year 2024 where Rs 5,23,563 crore was collected, according to official government data.

During the specified period of FY25, direct tax categories including corporate tax, income tax, and securities tax exhibited commendable growth rates as well.

Direct tax is a type of tax that is paid by an individual directly to the government. This puts the responsibility of payment solely on the taxpayer and it cannot be transferred to another entity or person. In India, the Central Board of Direct Taxes (CBDT) oversees the administration of direct taxes and plays a crucial role in the planning and implementation of direct tax-related strategies.

On the other hand, indirect tax is paid by an individual to the government through an intermediary. The intermediary then forwards the tax payment to the government. In India, the Central Board of Indirect Taxes and Customs (CBIC) is responsible for managing indirect taxes. Like the CBDT, the CBIC operates under the governance of the Department of Revenue.

What did FM say about Direct Taxes in Interim Budget?

 In her speech, FM Sitharaman highlighted that the return filers have swelled to 2.4 times in the last ten years and that the Centre appreciates the taxpayers "for their support".

"I would like to assure the taxpayers that their contributions have been used wisely for the development of the country and the welfare of its people," she said.

She added that in the past decade, direct tax collection has seen a remarkable three-fold increase, while the number of return filers has surged by 2.4 times. Notably, outstanding direct tax demands up to Rs 25,000 for the period up to FY 2009-10 have been withdrawn.

Additionally, outstanding direct tax demands up to Rs 10,000 for the financial years 2010-11 to 2014-15 have been waived, benefiting approximately one crore taxpayers.
Furthermore, the tax benefits extended to Start-Ups and investments made by Sovereign wealth funds or pension funds have been prolonged until March 31, 2025.

Moreover, the tax exemption on certain income of IFSC units has been extended by a year, now effective until March 31, 2025, as opposed to the earlier deadline of March 31, 2024.

What did FM say about Indirect Taxes in Interim Budget?

On indirect taxes, Sitharaman said that the Goods and Services Tax (GST) has reduced the compliance burden. "The tax base of GST more than doubled and the average monthly gross GST collection has almost doubled to Rs 1.66 trillion, this year.

She said in FY24, the average monthly gross GST collection has experienced a noteworthy surge, doubling to Rs 1.66 lakh crore. This significant increase is complemented by a doubling of the GST tax base, indicating a substantial expansion in economic activity. Additionally, the State SGST revenue buoyancy, which encompasses compensation released to states, has shown notable improvement. This metric increased to 1.22 in the post-GST period (2017-18 to 2022-23) from 0.72 in the pre-GST era (2012-13 to 2015-16), reflecting enhanced fiscal health.

Furthermore, a notable 94% of industry leaders have expressed a favorable perspective on the transition to the Goods and Services Tax (GST), highlighting its positive impact on businesses. The implementation of GST has notably optimized supply chain operations and alleviated the compliance burden on the trade and industry sectors. Moreover, the streamlined tax structure resulting from GST has led to lower logistics costs and reduced taxes, ultimately translating into decreased prices for goods and services. This reduction in costs has directly benefitted consumers, making products and services more accessible and affordable.

It is to be noted that FM Sitharaman on February 1 proposed to retain the same tax rates for both direct and indirect taxes, including import duties. She also maintained the status quo on the capital gains structure, opting not to introduce any changes.

“As for tax proposals, in keeping with the convention, I do not propose to make any changes relating to taxation and propose to retain the same tax rates for direct taxes and indirect taxes including import duties,” FM Sitharaman said.