According to the latest figures compiled by the central board of direct taxes (CBDT), the mop-up for FY22 is only about ₹38,000 crore short of the 2022-23 budget estimates (BE), which means direct tax collections will need to grow by only 3.2% to meet this year’s target. Corporate tax collections for FY22 has already reached the budget target for FY23, while income tax collections exceeded the BE for FY22 by 33,000 crore. Securities transaction tax mop-up stood at ₹23,000 crore, topping the revised estimate of ₹20,000 crore. The target for STT for FY23 is ₹20,000 crore.

Mumbai accounted for a third of the total mop up at ₹4.48 trillion, a 50% increase from the previous year, followed by Bengaluru, which posted a 43% growth. Delhi, Chennai and Pune recorded increases in direct tax collections of 38%, 48% and 69% respectively. In the budget for 2022-23, the government assumed direct tax revenue growth at 12% to ₹14.2 trillion. Assuming the same rate of growth on the actuals for 2021-22, net direct tax collection is set to touch ₹15.6 trillion.

Direct tax revenue collections for 2022-23 may provide the government with an additional spending buffer in the current fiscal in case the spike in global fuel and commodity prices led by the Russia-Ukraine conflict disrupts economic demand.

“The better-than-expected tax collections can be attributed to the revival in corporate earnings. The collections exceeding the revised estimates are in line with expectations as some room was kept to account for contingencies,“ said a government official requesting anonymity.Retail inflation has breached RBI’s upper tolerance limit for two straight months and touched 6.07% in February, while the fiscal deficit target for FY22 is 6.9% of GDP.

Direct tax collections, net of refunds, comprising corporate tax and personal income tax, touched ₹13.95 trillion as of 31 March, about 49% higher than 2020-21 and 10.3% more than the revised estimate for 2021-22 announced in the budget. Gross direct tax collections (before refunds) stood at ₹16.06 trillion, up 36% from ₹11.8 trillion in 2020-21. Refunds declined 15% from last year at ₹2.11 trillion.

“These are preliminary figures and the tax collection may see some further upward revision as banks report more data," said a second government official who also requested anonymity.

Corporation tax mop up recorded a 57% growth last fiscal to ₹7.19 trillion. Personal income tax collection grew by 44% to ₹6.48 trillion in FY22, and is ₹52,000 crore short of the target set for FY23.

Direct tax collections have exceeded the revised estimates for the second straight year in 2021-22, with the government officials attributing the robust tax collections to increased enforcement due to the sharing of goods and services tax (GST) data with the Central Board of Direct Taxes (CBDT) and easier compliance. But collections nearing the next year’s target are unprecedented.

A third government official pointed out that net collections may touch ₹18 trillion in the current fiscal assuming the same level of tax buoyancy.

Rakesh Nangia, chairman, Nangia Anderson India said recovery across sectors and revival of the job market have perked up the government’s revenue collections.

“Aided by revival of economic activities and better compliance, the government’s advance direct tax collections have surpassed the targets... (This) reinforces our view that the recovery is K-shaped, with the formal sectors gaining market share."

Better-than-expected tax collections allowed the Centre to opt for additional spending last fiscal without significantly disturbing the fiscal math.

The government had moved supplementary demand for grants in the Parliament in March to spend an additional ₹1.07 trillion in the current fiscal. It includes a ₹15,000 crore outlay for fertilizer subsidies following rising fertilizer prices due to the Russia-Ukraine conflict.

“The expected overshooting of the Centre’s gross and net tax revenues for FY23 relative to the budget estimates is likely to entirely absorb the key risks related to additional spending that are evolving at the current juncture, namely, higher fertilizer and food subsidies, as well as potential cut in excise duty on fuels. Consequently, the fiscal deficit in FY23 may remain similar to the budget estimate of ₹16.6 trillion," said Aditi Nayar chief economist, ICRA Ltd.

Queries emailed to central board of direct taxes (CBDT) on Tuesday remained unanswered at press time.