Another feather in Modi govt’s cap: Income tax collections overtake corporation tax for first time in 21 years

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New Delhi: The Centre published its accounts for the financial year 2020-21 early this week. Among all the important aspects of the report, the data shows that the personal tax collection was higher than corporate tax collection for the year after 21 years. 

Income tax collection for FY21 stood at Rs 4.69 trillion, while the corporation tax collections stood at Rs 4.57 trillion. The calculation points out that income tax collection was Rs 12,000 more than corporation tax collections. 

Prior to FY21, income tax collection topped corporation tax 21 years earlier in the financial year 2000-01. At that time, the total direct tax collection was Rs 68,305 crore. Out of this, corporate tax collection was Rs 35,696 crore, personal income tax collection was Rs 31,764 crore and other tax collection was Rs 31,764 crore.

For those uninitiated, earning individuals pay income tax based on their salaries while companies pay corporation tax on the profit they made in the respective financial year. 

Why income tax crossed corporation tax in FY21?

The major reason that many would have thought behind the shift could be the pandemic-led economic downturn due to which many companies suffered severe losses or ended up the financial year with fewer profits. 

Fewer profits mean less tax, and therefore corporations paid lower taxes. However, this is not the case at least in FY21. Official data suggests that profit after tax of listed companies for FY21 jumped to 2.6% of gross domestic product. 

The performance of the Indian publicly listed companies is apparently the best since FY15, when their profit was 3.1% of gross domestic product, according to a report by Livemint. 

Therefore, it’s quite surprising that income tax collections jumped corporation tax collections at a time when many lost their jobs as well.

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