How much tax does India collect? This is a question that often sparks debates and discussions among economists, policymakers, and citizens alike. India, being one of the fastest-growing economies in the world, has seen a significant increase in its tax revenue over the years. Understanding the magnitude of tax collection in India can provide insights into the country’s economic health and its potential for further growth.
India’s tax revenue has been on a steady rise, driven by various factors such as economic growth, tax reforms, and increased compliance. According to the latest data available, the total tax revenue collected by the Indian government in the financial year 2020-21 was approximately 23.5 trillion Indian rupees (USD 320 billion). This amount accounted for around 10.9% of the country’s Gross Domestic Product (GDP) during that period.
The primary sources of tax revenue in India are direct and indirect taxes. Direct taxes include income tax, corporate tax, and wealth tax, while indirect taxes encompass goods and services tax (GST), customs duty, and excise duty. In the financial year 2020-21, direct taxes contributed approximately 57% of the total tax revenue, followed by indirect taxes with a share of 43%.
Income tax is the largest source of direct tax revenue in India, accounting for about 45% of the total direct tax collection. The Indian government has been successful in broadening the tax base by introducing various measures such as demonetization, the Goods and Services Tax (GST), and the Pradhan Mantri Garib Kalyan Yojana (PMGKY). These measures have led to increased compliance and a rise in income tax collections.
Indirect taxes, particularly GST, have emerged as a significant revenue source for the Indian government. GST was introduced in July 2017 to replace multiple indirect taxes levied by the central and state governments. Since its implementation, GST has contributed significantly to the country’s tax revenue, with a share of 43% in the financial year 2020-21.
Despite the impressive growth in tax revenue, India still faces challenges in increasing its tax-to-GDP ratio. The country’s tax-to-GDP ratio stands at around 10.9%, which is lower compared to many developed countries. This gap can be attributed to various factors, including a narrow tax base, a significant informal sector, and low compliance rates.
To bridge this gap, the Indian government has been focusing on several initiatives. These include:
1. Expanding the tax base: The government has been implementing measures to bring more individuals and businesses into the tax net, such as simplifying tax procedures and reducing the compliance burden.
2. Strengthening tax administration: Enhancing the capabilities of tax authorities to detect and prevent tax evasion and fraud.
3. Promoting digital payments: Encouraging the use of digital payments to reduce the cash-based economy and improve tax compliance.
4. Rationalizing tax rates: Reviewing and rationalizing tax rates to ensure fairness and encourage economic growth.
In conclusion, India has made significant progress in tax collection over the years, with the total tax revenue reaching approximately 23.5 trillion Indian rupees in the financial year 2020-21. However, the country still has a long way to go in increasing its tax-to-GDP ratio and ensuring a more robust and sustainable tax system. As India continues to grow, addressing these challenges will be crucial for its economic development and prosperity.
