India pandemic Department strain India

What drove income tax collections growth in the pandemic year

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tax revenues in the financial year that ended on 31 March touched an estimated ₹27.17 trillion, surpassing the revised estimates for that year presented in the 1 February budget by ₹3.1 trillion.

The overall collections are about 17% higher than in 2020-2021, driven by a 22% growth in direct taxes comprising corporate and income tax.

What has driven direct tax collections, and is the pace of growth durable or a flash in the pan? One, the base effect has helped, as the pandemic had sharply dented tax revenues in the previous year.

The direct tax to GDP ratio fell to its lowest in 14 years, at 4.8% in 2020-21. To support consumption, which suffered during the first-wave covid-19 lockdowns in 2020, the tax department had swiftly processed and released tax refunds, in many cases within days.

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