India's 'achievable' FY27 direct tax target faces a make-or-break second half

New Delhi: The government's Rs 26.97 lakh crore budgeted direct tax mop-up target is achievable, but meeting it will require a pickup in collections in the second half of the fiscal, particularly from corporate taxes and advance tax instalments, experts said on Thursday.

The overall collection of direct taxes, which includes personal I-T, corporate tax and Securities Transaction Tax, so far in the current fiscal looks reasonable, with about 53 per cent of the budgeted target already achieved.

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Net direct tax collection till November 10 this fiscal stood at about Rs 14.42 lakh crore, an 11.76 per cent year-on-year growth.

"The December and March advance tax instalments, along with year-end payments, should provide further momentum in the second half. Corporate tax collections will remain an important driver, while non-corporate tax collections have been relatively subdued so far," Nangia & Co LLP, Senior Partner, Amit Agarwal said.

Reflecting healthy corporate profitability and sustained economic momentum, net corporate tax collection recorded an 18 per cent year-on-year growth to Rs 6.32 lakh crore till November 10 this fiscal. However, net non-corporate tax (paid by individuals, firms and HUFs) remained muted with mop-up at about Rs 7.56 lakh crore, reflecting a 5.3 per cent year-on-year growth.

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"The moderation in refunds, coupled with stronger advance tax collections in the final quarter, should help the government achieve its budgeted target," Deloitte Partner Rohinton Sidhwa said.

Sidhwa said that refund outflows are generally higher during the first three quarters of the financial year, and unlike the previous year, this fiscal, refund deceleration has reversed.

So far this fiscal, I-T refund issuances have jumped 26 per cent year-on-year to over Rs 3.08 lakh crore.

Collection from securities transaction tax (STT) swelled 52 per cent to Rs 54,078 crore between April 1 and November 10. The increase in STT is due to the tax rate increase effected in the previous year.

The FY27 Budget hiked STT on futures contracts to 0.05 per cent from 0.02 per cent. STT on options premium and exercise of options were raised to 0.15 per cent from 0.1 per cent and 0.125 per cent, respectively.

Nangia's Agarwal said the STT collection growth reflects the increasing depth and activity in capital markets.

"We have seen an exceptionally strong IPO market over the last year, with more companies tapping the capital markets and a growing number of retail investors participating in these offerings. There is also a broader trend of household savings gradually moving towards financial assets and equity markets," Agarwal said.

EY India Tax Partner Jayesh Sanghvi said the direct tax collection target remains achievable, but meeting it will require an acceleration from the current level.

The government needs to collect about Rs 12.55 lakh crore in net direct taxes over the rest of the fiscal year, about 19.5 per cent more than in the corresponding period last year, against year-to-date growth of 11.76 per cent.

"Corporate profitability and the remaining advance-tax instalments will be pivotal, while stronger non-corporate receipts would make the recovery more broad-based. Refund outflows will also determine how much gross collection growth translates into net revenue.

"STT provides a useful cushion, but its relatively small contribution cannot offset a significant shortfall elsewhere. The December and March advance-tax collections will be the key tests of whether the Budget target is firmly within reach," Sanghvi added.