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It’s A Long Road to the Top- Tax Revenue Collection- Q1 ’20




The June Quarter of F.Y. 2020 saw a significant decline in the tax revenue collection. The Coronavirus clubbed with other factors have been the major reasons for this. The impact has been so bad, that the month of April saw a fiscal deficit of 35.1% of the target. The government and the citizens of India now face a challenge to kickstart the consumption and boost the economy.

35.1% Fiscal Deficit- Wait, What?

The fiscal deficit for F.Y. 20 shot up to 4.59% as compared to the estimated 3.8%. The deficit in the month of March 2020, stood at INR 9.35 lakh crore. This is 22% higher than targeted INR 7.96 lakh crore. Moreover, as per CGA (Controller General of Accounts) data, the fiscal deficit for the month of April of F.Y. 21 stood at 35.1%. Surprisingly, The Budget estimate for fiscal deficit F.Y. 21 is only 3.5% of GDP.

The net tax revenue for April 2020 stands at INR 21,412 crore. This is 70% less than INR 71,637 crore collected in April 2019.

Let’s Talk Numbers- Tax Collection at A Glance:

“Gross direct tax collection fell a full 31% to INR 1,37,825 crore in the first quarter (June) of F.Y. 2020-21, down from INR 1,99,755 crore in the first quarter of F.Y. 2019-20” an income tax official told PTI.

Direct Tax Collection for June Quarter 2020

Direct Tax Collection:

The Budget Expectations for Total Gross Tax collections was set to INR 24.23 lakh crore for the current fiscal year. This is 12% more as compared to INR 21.63 lakh crore in F.Y. 20. And the expectations for Direct Tax collection  for the current fiscal year (F.Y. 21) was set to  INR 13.19 lakh crore. This is 28% higher compared to last year’s expectations at INR 10.28 lakh crore. This was because the Government had expected a good response to the tax dispute settlement scheme ‘Vivad se Vishwas’ and the historic corporate-tax cut. But the first quarter of F.Y. 21 sums up to only 7% of the budget expectations.

The total Advance Tax collection also fell to INR 11,714 crore in the June quarter of F.Y. 21. This is a drop of 76.05% compared to the advance tax collection for the same quarter in F.Y. 20 which stood at INR 48,917 crore. The Advance Corporate Tax dropped 79% to INR 8,286 crore in the June quarter for F.Y. 21. The collection stood at INR 39,405 crore in the same quarter for F.Y. 20. Also, Advance Personal Tax collection has declined 64% to INR 3,428 crore from INR 9,512 crore.

So far in June the department has refunded INR 45,143 crore. This is 28% lower than INR 62,813 crore that was refunded in the corresponding quarter of last fiscal year.

This drop in tax collection can be justified on terms that India was facing a nation-wide lockdown during the first 2 months of the June quarter. 80% of the economic activities had come to a grinding halt.

Aditi Nayar, the chief economist at rating agency Icra, said, “The extent of contraction in net direct tax collection is in line with the de-growth that is expected in the non-agricultural portion of the economy in the first quarter due to the lockdown. For FY21 as a whole, net tax revenue is likely to fall short by Rs 3.9 lakh crore of the budget estimate.”

Dividend Distribution & Securities Transaction Tax:

The Securities Transaction Tax (STT) collection saw a rise of 14% during April-June 2020. The collection stood at INR 2,568 for April-June 2020 while it was INR 2,262 crore for April-June 2019.

Tax

June Quarter 2020 (in crore)

June Quarter 2019 (in crore)

Change
DDT / TDS on Dividend 1,023 4,093 Down 75%
STT 2,568 2,262 Up 14%

The STT collection is closely linked to stock market conditions. The market performance across the globe has been pretty volatile. During 2012-13, amid a downturn in the market, STT collection dropped below INR 5,000 crore. Since then it has been on the rise due to an upward inclination in the market. For the F.Y. 20, the Budget Expectation was INR 12,500 crore. The actual collection was INR 12,000. This almost breached the threshold. This might be due to a high share of delivery-based trades. The STT rate for delivery-based trades is 0.1%, while on intra-day trades is 0.025%. 

Despite the sharp sell off in the month of April this year, STT saw an increase in collection. As per a report in Business Standard, experts attributed the higher collection to- “the volatility in the futures and options (F&O) segment due to the global pandemic.”

This has been explained by  Sunil Gidwani, partner (markets) of Nangia Andersen LLP. He said, “While trading volumes have been shrinking and F&O trading has seen a massive fall, STT is payable on both the legs of buy and sell in case of cash segment and on the sell leg of F&O. So, when there is a massive exit by any class of investors like foreign portfolio investors, STT is still payable.”

The Government expectations from the STT kitty for the current fiscal year is INR 13,000 crore. Maybe, if the market conditions remain stable, the Government might just be able to achieve this target. 

Tax collection from Dividend Distribution Tax (DDT) has declined 75% to INR 1,023 crore from INR 4,093 crore. (3,220 from 809). This might be a result of the change in tax structure from April 1. The dividend is now taxable at the hands of the investors instead of the company.

GST:

Indirect Tax April 2020 (in crore) April 2019 (in crore) Change
GST 16,707 55,329 Down 70%

GST collections (as per CGA) for the month of April 2020 is INR 16,707 crore compared to INR 55, 329 crore collected in April 2019.  This indicates a drop of 70% in GST collection. The collection in March was at INR 97,597 crore. Of this the CGST was at INR 19,183 crore, SGST was at INR 25,601 crore, IGST was at INR 44,508 crore (including INR 18,056 collected on imports) and cess was INR 8,306 crore (including INR 841 crore collected on imports).

The future?

These declining figures are certainly going to challenge the revenue department of India. The expectations have been set too high. But the most important factor leading to a slump, the Coronavirus, was not taken into account while penning down the expectations. There is a high chance that these numbers are still better considering the massive decline in economic activities.

But is Covid-19 only to be blamed for the poor performance. If one sees, tax collections have been continuously declining since last year. The original budget expectation for direct tax collection for F.Y. 2019-20 was INR 13.3. lakh crore. This was later revised down to INR 11.7 lakh crore. And surprisingly the actual collections reached even lower to INR 10.27 lakh crore. The major reasons being- the historical corporate-tax cut. The beneficial impact of this can only be experienced once capacity building and consumer demand pick up. What was hoped is that the tax cut would result in a rise in economic activities. And the increased consumption would compensate for the low tax rate. This assumption has now come under strain owing to the Covid-19 scenario. And the decline in corporate advance tax is because the companies are struggling to make profits.

The current liquidity crisis has been clubbed with uncertainties. It might be possible that businesses would have deferred their advance tax payments to subsequent quarters in the hopes that the economy would revive in the months to come. 

Also, the deferral of the Vivad se Vishwas scheme from March 2020 to June 2020 and then to December 2020 might be another important factor in declining tax rates.

Individuals are going through tough circumstances. The current scenario has challenged the wits of a large number of people and the Government. It is really important that businesses quickly revive and the consumer demand rises. That said, one cannot predict the future. Instead, one can work towards lifting the economy with everything they have.

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Got Questions? Ask Away!

  1. Hey @Shweta_Saini

    Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.

    The due dates for advance tax installments are:

    • 15th June - 15% of the tax liability
    • 15th Sept - 45% of the tax liability
    • 15th Dec - 75% of the tax liability
    • 15th March - 100% of the tax liability

    If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.

    Let us know if you have any further questions!

  2. Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?

    If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?

    Thanks in advance!

  3. Avatar for Yesha Yesha says:

    Hey @riya_gupta

    You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.

    You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.

    Hope this helps!

  4. Hey @TeamQuicko

    I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?

  5. Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:

    Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
    Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.

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