Personal income tax (PIT) collections have increased significantly in the past decade. Data presented in the Lok Sabha shows that PIT has surged to 3.5 per cent of the Gross Domestic Product (GDP) in the financial year 2023-24 (FY24). This has been a surge from 2.1 per cent in FY15, which reflects how the economy has expanded and greater tax compliance by the taxpayers.
The data, presented by Minister of State for Finance Pankaj Chaudhary, reveals that PIT collections have increased from around Rs 2.66 lakh crore in FY15 to over Rs 10.45 lakh crore in FY24, a jump of around 293 per cent.
Such growth in the collection is attributed to many factors, such as economic growth, a growing taxpayer base and policy reforms by the government.
What is driving this surge?
This significant rise in the PIT collections can be linked to some key developments. The Lok Sabha answer attributes it to the introduction of the New Income Tax (NTR) regime under the Finance Act, 2021. The NTR has played an important role in streamlining tax structures and expanding the taxpayer base.
“The new income tax regime… has been the most significant change made in the personal income tax system during the last ten years,” Chaudhary stated.
Under this regime, individuals and Hindu Undivided Families (HUFs) have been given the option to choose between the old tax structure, which offers various deductions, and the new tax regime, which has lower tax rates but offers fewer exemptions.
Chaudhary noted that the impact of changes in the taxation system cannot be measured in isolation since multiple elements influence overall tax revenue. The government has been making efforts towards simplifying the tax system so that compliance becomes easy towards voluntary payment of taxes.
From PIT to Non-Corporate Tax
Moreover, the government has now substituted the phrase 'personal income tax' with 'non-corporate tax' in its official communications. This reclassification was intended to broaden the scope of taxation to include firms, associations of persons, and local authorities in addition to individual taxpayers.
However, this change in terminology does not alert the fundamental structure of tax collection.
Other Tax Reforms For Ease of Taxpaying
Chaudhary further notes some other major reforms over the last decade in tax administration which are aimed at reducing the complexity of taxation and ease of compliance. Some of the foremost changes are :
Facilitating pre-filled Income Tax returns (ITRs)
Faceless assessment processes
Digital Tax payment systems
The consistent increase in PIT collections during the past decade indicates India's changing economic scenario, policy changes, and increasing participation of taxpayers. With additional simplifications expected under the newly proposed income tax bill 2025, the coming years may witness an even more effective tax system.
