Over the past couple of decades, there’s been a major shift in how the Indian government collects its taxes. For the first time, individual taxpayers are contributing more than 30% of the total tax revenue, overtaking what companies pay.
According to new data from the Income Tax Department (covering 2000-01 to 2023-24), the government is now leaning more on direct taxes, like income tax and corporate tax, rather than indirect taxes, such as GST, excise duty, or customs.
But what’s really striking is how personal income tax has become the biggest piece of the puzzle within direct taxes. In 2023-24, it made up over half (53.3%) of all direct tax collections, the highest it’s ever been. That shift started in 2020-21, when, for the first time, income taxes from individuals overtook corporate taxes in this category.
This trend has big implications. Generally, relying more on direct taxes is seen as a fairer system because it’s based on what people earn, unlike indirect taxes, which hit everyone the same, no matter their income. That’s why most developed countries depend more on direct taxes. For example, in the U.S., almost 90% of taxes come from income, corporate, and social security taxes.
The only exception in recent years was during the pandemic in 2020-21. That year, with incomes and profits falling, direct tax collections dropped, and indirect taxes briefly took the lead. But things quickly flipped back once the economy recovered.
One major factor in this trend is the 2019 corporate tax cut. The government lowered the rates hoping to attract more investment. While corporate tax revenue did grow by 64% after the cut, personal income tax grew even faster by 112%. As a result, corporate taxes now make up a much smaller share of direct taxes down from 58.3% in 2018-19 to 46.5% in 2023-24.
So, what does this all mean? Basically, individual taxpayers are carrying more of the tax burden than ever before. Back in 2004-05, income tax made up about 16% of the total tax collected. That number has nearly doubled to 30.2% in 2023-24. It’s a big shift and one that raises important questions about how fair and effective the current tax system really is.
