Personal Income Tax Becomes India’s Largest Revenue Source
Personal income tax has now become the largest revenue category for the Indian government, surpassing both corporate tax and GST, according to a report by Anand Rathi. While GST, corporate tax, and personal income tax each account for nearly 30% of gross tax collection, their growth rates have varied significantly since FY19.
Growth Rates of Major Taxes
Corporate tax growth has been the slowest and most volatile, mainly due to a sharp rate cut. Despite a significant increase in corporate earnings in FY24, corporate tax growth remained modest. On the other hand, personal income tax has grown the fastest, replacing corporate tax as the largest revenue source. GST has shown steady growth, overtaking corporate tax collections since FY23.
Future Projections
The report projects an increase in tax buoyancy, with India’s GDP expected to grow nominally by 11-12%. Overall gross tax collection is anticipated to grow at a compound annual growth rate (CAGR) of 13-15%, with an 11% increase expected in FY25. This optimism is based on a stable indirect tax structure under GST and a resilient economic outlook.
Non-Tax Revenue and Fiscal Approach
Non-tax revenue has seen a significant boost due to increased profit transfers from the Reserve Bank of India (RBI). The ratio of transfers to states to gross tax revenue is likely to remain around 32%, maintaining a balanced fiscal approach.
Capital and Revenue Spending
There has been a notable rise in capital spending, with the revenue-to-capital expenditure ratio improving from 87%:13% during FY14-FY21 to 79%:21% in FY24. The ratio is projected to improve further to 77%:23% in FY25. Revenue spending is expected to grow by 6% in FY25, while capital spending is projected to increase by 17%.
Welfare Expenses
Spending on food subsidies and rural development is likely to increase to support rural India and boost consumption. Debt servicing costs are also expected to grow, reflecting the government’s commitment to managing its fiscal responsibilities while addressing social welfare needs.
