Higher PIT collection doesn't equate higher tax on individuals, sources clarify

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The rise in personal income tax (PIT) collection in recent years does not imply that individuals are subject to a higher tax burden than corporates, sources said. As of November 12, net direct tax collections reached Rs 12.10 lakh crore, with Rs 5.09 lakh crore from corporate tax and Rs 6.64 lakh crore from non-corporate tax.

This change in classification from PIT to “non-corporate tax collection” is intended to provide a clearer understanding of the tax landscape, the source explained.

The non-corporate category includes not only individual taxpayers but also associations of persons (AOP), bodies of individuals (BOI), and limited liability partnerships (LLPs). As it stands, non-corporate tax constitutes 53 percent of total direct tax collections, while corporate tax represents 47 percent.

Tax Composition Shift Driven by Compliance and Growth

"The increased non-corporate tax collection reflects economic growth, improved compliance, and robust tax governance," he stated. Additionally, changes like the growing preference for LLP structures among businesses have further impacted the non-corporate tax bracket. Higher compliance, bolstered by data exchange and anti-evasion measures, has brought in a surge of tax filings. “Even in OECD countries, non-corporate tax collections often outstrip corporate tax,” the source added.

Middle-Class Tax Burden Reduction

The tax liabilities for middle class and upper middle class individuals, particularly those earning up to Rs 20 lakh annually, have significantly reduced over the past decade. Official data reveals that the tax burden on individuals earning up to Rs 20 lakh has dropped substantially.

Furthermore, the increased income tax returns (ITRs) filed by high earners indicate stronger tax compliance. From 2014 to 2024, there has been a 120 percent increase in total tax returns filed — from 3.6 crore in 2014 to 7.9 crore in 2024. Those earning above Rs 50 lakh annually have shown the most notable increase, with returns from this group growing over five times — from 1.85 lakh in 2014 to 9.39 lakh in 2024. Consequently, this group now contributes 76 percent of the income tax collected.

"Through anti-evasion policies, we’ve ensured that high earners contribute fairly, alleviating pressure on the middle class," he said.

Zero Tax Filers Rise as Exemptions Increase

The government’s revision of the exemption limit has also widened the zero-tax bracket, significantly benefiting the middle class. The exemption threshold has increased from Rs 2 lakh in 2014 to Rs 7 lakh in 2024. As a result, income tax contributions from individuals earning below Rs 10 lakh have decreased from 10.17 percent of total tax collections in 2014 to 6.22 percent in 2024.

Decline in Tax Liability Across Income Brackets

Taxpayers earning between Rs 2.5 lakh and Rs 7 lakh now enjoy zero tax liability, while those earning between Rs 7 lakh and Rs 10 lakh pay a modest average tax of Rs 43,000 annually. “For those earning up to Rs 10 lakh, income tax rates are among the lowest across emerging economies, representing only 4-5 percent of their income,” he highlighted. He also noted a 60 percent inflation-adjusted reduction in tax liability for taxpayers in the Rs 10 lakh-Rs 20 lakh range.

Popularity of the New Tax Regime

The newly introduced tax regime has been widely adopted, with 74 percent of the 8 crore tax filers this year choosing the new structure. This regime provides simplified slabs and lower rates without deductions. "The response to the new tax regime highlights taxpayers' preference for clarity and simplified compliance," the source stated.

Outlook for Direct Tax Targets

With the fiscal year on track, the government expects to exceed the budgeted Rs 22 lakh crore target for direct tax collections. The trend indicates robust growth in income tax collections due to increased compliance, economic resilience, and the effectiveness of revised tax policies.