Personal Income Tax Collection Crosses Corporate Tax for the First Time in India

In a historic shift in India’s tax structure, personal income tax (PIT) collections have exceeded corporate tax collections for the first time, as per a report by JM Financial Institutional Securities. This milestone signals a deep transformation in India’s direct tax architecture, spurred by digitisation, economic formalisation, and rising individual compliance.

Changing Composition of Direct Taxes

Shift in Tax Contribution Patterns

Between FY14 and FY24, the share of personal income tax in total direct taxes surged from 38.1% to 53.4%, while the corporate tax share declined from 61.9% to 46.6%. This reversal highlights,

• A broadening tax base among individuals.
• Greater transparency and monitoring of personal income.
• Improved tracking of undeclared and informal earnings.

This shift also reflects India’s transition towards a more formalised, salary-based economy.

The Rise in Taxpayer Base

Growth in Tax Filers and Digital Enforcement

India’s individual income tax return (ITR) filers increased dramatically,

• From 30.5 million in FY14 to 69.7 million in FY23 — a 2.3x growth.
• Including TDS payers not filing returns, the taxpayer base doubled from 53.8 million to 99.2 million.

This surge is largely due to,

• Simplified filing procedures.
• Increased online awareness.
• Stronger integration of digital financial records.

TDS and Advance Tax as Key Revenue Drivers

Robust Upfront Compliance

• TDS (Tax Deducted at Source) collections more than doubled, from Rs 2.5 trillion in FY14 to Rs 6.5 trillion in FY24.
• Advance tax payments rose nearly four times, from Rs 2.9 trillion to Rs 12.8 trillion in the same period.
• Together, these now constitute over 50% of India’s total direct tax revenue, signaling a more proactive tax compliance culture among individuals and businesses.

GST’s Role in Strengthening Direct Tax Compliance

Introduced in 2017, the Goods and Services Tax (GST) has significantly contributed to improving compliance by,

• Creating digital audit trails through invoice matching.
• Enabling cross-verification between GST data and income declarations.
• The number of active GST taxpayers rose from 12.4 million in 2019 to 14.7 million in 2024, bringing many informal businesses into the tax net. This has tightened surveillance on tax evasion and fostered a culture of transparency.

Rising Salaries and Higher Personal Tax Contributions

One of the biggest contributors to the PIT surge is the increase in declared salaries,

• Declared income rose from Rs 9.8 trillion in FY14 to Rs 35.2 trillion in FY23 — a compound annual growth rate (CAGR) of 15%.
• Personal income tax collections followed suit, rising from Rs 2.4 trillion to Rs 8.3 trillion during the same period.
• This reflects not just better pay but also greater willingness and capacity to comply with tax laws.

Direct Tax to GDP Ratio and Global Comparison

India’s direct tax-to-GDP ratio improved from 3.2% in FY01 to 6.6% in FY24, showcasing stronger tax mobilisation. However, challenges remain,

• Only 6.9% of India’s population pays income tax.
• In contrast, nearly 50% of citizens contribute to income taxes in many developed nations.

This gap highlights the need for continued reform, better outreach, and enforcement to widen the tax net.