The Union Budget for 2011-12 forecast a 20% expansion of corporation tax collections relative to the Provisional Accounts for 2010-11, based on an optimistic assumption of 9% economic growth and other measures such as an increase in the rate of minimum alternate tax ( MAT) to 18.5% of book profits from 18%, while the surcharge on domestic companies was reduced to 5% from 7.5%.

Contrastingly, gross corporation tax collections have risen by a modest 12% in April 2011-January 2012 according to data released by GoI, partly reflecting the slower economic growth in 2011-12 (6.9% in April-December 2011, according to data released by the CSO).

At the same time, elevated input prices, higher interest rates and a weaker rupee have compressed the margins of producers, thus dampening growth of corporation tax. Even though the exemption limit for tax payers was increased from Rs 160,000 to Rs 180,000, GoI had estimated that income tax collections would expand by a robust 24% in 2011-12.

However, data released by GoI indicates that gross personal income tax collections have expanded by a slower, albeit healthy, 20% in April 2011-January 2012.

While gross direct tax collections expanded by around 15% between April 2011 and January 2012, refunds of direct taxes rose by 46% as compared to the same months of 2010-11. Accordingly, GoI's net direct tax collections stood at Rs 3.5 lakh crore between April 2011 and January 2012, an increase of 9% over the same months in 2010-11. With the Indian economy expected to record a sub-7% expansion in Q4, 2011-12, ICRA expects direct tax collections to fall short of the budget expectation for 2011-12 of Rs 5.3 lakh crore.

ICRA expects the Union Budget for 2012-13 to increase the exemption limit for personal income tax in line with rising income levels, which would provide a limited boost to consumption spending.

Additionally, GoI may consider enhancing the limit for deductions with regard to income tax to encourage higher investment in infrastructure bonds as well as interest on housing loans. Minimal changes are expected with regard to corporation tax, pending the implementation of the Direct Taxes Code on April 1, 2012. With economic growth unlikely to rebound sharply in 2012-13, direct tax collections are likely to display a moderate growth in the coming fiscal year.