Budget 2024-25: Income Tax Contributes More to Govt Revenue Than Corporations

The skewed trend of individual income tax payers contributing more to the union government’s coffers than corporates has its basis in the tax break given to corporates five years ago.

The Budget at a glance establishes that the share of government revenue from income tax (tax on individuals) at 19% is more than what corporates have contributed (17%).

This follows from taxes foregone five years ago, when corporates were given a tax break.

The corporate tax-rate cut was meant to be at the cost of a revenue loss of Rs 1.45 lakh crore per annum for the government. The ‘reason’? That this would boost private investment and create jobs.

There are serious concerns about a K-shaped growth afflicting the Indian economy, a severe income inequality, where as per the Paris-based World Inequality Lab, on March 18, 2024, India is faring worse from current policies than it during the British Raj. Studying income tax data between 1922-2023, they found, “By 2022-23, top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India’s top 1% income share is among the very highest in the world.” They also said that, “in line with earlier work, we find suggestive evidence that the Indian income tax system might be regressive when viewed from the lens of net wealth.”

In the run-up to the general elections, when asked about the severe and growing income inequality, Prime Minister Narendra Modi said in a television interview, “shall I make everyone poor?”, reflecting a lack of concern with widening income inequalities.

What the numbers say: 2014-2024

In absolute terms, corporate taxes have grown by only 2.3% (Figure 1), from 4.28 lakh crore in 2014-15 to 10.2 lakh crore in 2024-25 budgetary estimates. In contrast, income taxes have increased by 4.5% in the same period, from 2.5 lakh crore to 11.8 lakh crore. Even the year-over-year percentage increase favours the corporates over income tax payers.

Figure 1

In terms of percentage contribution to Gross Tax Revenue (GTR), the government has recently attempted to reduce the proportion of corporate tax (Figure 2). The percentage of corporate tax to GTR has decreased from 34.5% in 2014-15 to 26.6% in the 2024-35 budget estimates. On the other hand, the percentage of income taxes has increased from 20.8% to 30.9% in the same period.

Figure 2

One can clearly see in Figure 3 that corporate tax as a percentage of GDP has decreased from 3.4% to 3.1% in the last 10 years. In contrast, income taxes have increased from 2.1% to 3.5%, indicating an upward trend in income tax contributions.

Figure 3

Personal Income Tax vs Corporate Tax: 2018-2023

Individual tax collections in India surged by a whopping 76% between 2018-19 and 2022-23. But, critically, the corporate sector share in that tax collected has inched by only a fraction, just 24.45%.

Personal income tax collection, which includes Securities Transaction Tax, stood at Rs 4,73,179 crore in 2018-19. It increased to Rs 8,33,307 crore in 2022-23, The Indian Express, citing the Central Board of Direct Taxes, reported.

However, corporate tax collection increased to Rs 8,25,834 crore in 2022-23 from Rs 6,63,572 crore in 2018-19.

This calculation underlines a reinforcing of the trend noticed about individuals being squeezed even as corporates are given relief.

Tax relief given to corporates in 2019 caused the ratio between individual contribution to total tax versus that of corporates to start to get skewed. As in this analysis, this was when the finance minister announced “an unprecedented cut in corporate tax rates from the prevailing basic rate of 30% to 22%.” This was apart from other incentives that were also announced.