Companies may pay lower advance tax in the September quarter compared with the year-ago period, according to initial projections by the income-tax department. The numbers suggest that sluggish economic growth has taken its toll on corporate profitability and government revenue.

According to the income-tax department’s projections, 13 firms have indicated they will pay Rs.4,536 crore advance tax in the September quarter, 12% lower than a year ago.

A clearer picture, however, will emerge by 16 September when the top 100 companies pay their second quarter advance taxes.

Indian companies pay advance tax a fortnight before the end of every quarter on their projected earnings. These numbers are seen by some analysts as a reflection of their financial performance. In line with the Income-Tax Act, companies are required to pay 15% of their total advance tax in the first quarter, followed by 30%, 30% and 25% in the next three quarters, respectively.

India’s economic growth slowed to 5% in the year ended 31 March—the slowest pace in a decade. Growth was 4.4% in the first quarter of the current fiscal year, the slowest in four years. High borrowing costs and high inflation have caused companies to delay their investment plans as consumer spending remains tepid.

As the economy struggles for recovery, the banking sector is staring at a potential bad loan crisis as non-performing assets rise.

State Bank of India, the largest bank by assets, is expected to pay 39% lower advance tax in the September quarter—Rs.1,100 crore from Rs.1,800 crore during the same period last year. Dena Bank is likely to pay 73% lower advance tax at Rs.50 crore, while IDBI Bank Ltd may pay Rs.400 crore, down 15%.
IndusInd Bank Ltd is likely to pay advance tax of Rs.210 crore, up 31% from Rs.160 crore in the yea-ago period. Bank of Baroda’s initial advance tax numbers remained unchanged at Rs.620 crore.

The trend is mixed for companies from other sectors.

Drug maker Lupin Ltd is likely to pay Rs.165 crore as advance tax for the September quarter, up 68% from the same quarter last year, and Johnson and Johnson Ltd may pay Rs.53 crore, up 33%. In the cement sector, Ambuja Cements Ltd may pay 27% lower advance tax at Rs.110 crore and Lafarge India Pvt. Ltd around Rs.58 crore, down 11%.

A senior I-T official (in Mumbai) said, “The growth in tax collection is (likely to be) muted.”

The tax division in Mumbai, which serves as the headquarters for most of India’s top companies, contributes the biggest share of taxes in India.

To be sure, India’s factory output as measured by the Index of Industrial Production rose 2.6% in July and retail inflation decelerated in August for the second consecutive month to 9.52%, adding to the recent string of positive tidings for an economy that has been in the doldrums for the past year.
However, analysts are maintaining caution.

“We cannot call the rebound in industrial output and slight deceleration in consumer price inflation as greenshoots,” said Gautum Trivedi, managing director and head of equities (India) at Religare Capital Markets Ltd. “We need to wait for the actual advance tax numbers but initial data shows that economy continues to remain in a precarious situation. Underlying weakness in the economy may remain until the end of current fiscal year.”