Direct tax buoyancy above one for third financial year

India’s direct tax buoyancy remained above one for the third consecutive financial year in 2024-25 at 1.39, indicating that direct tax collections continued to grow faster than nominal gross domestic product (GDP), according to government data submitted to a parliamentary panel.The tax buoyancy is a measure of growth in tax revenues as compared to GDP growth (Reuters)The tax buoyancy is a measure of growth in tax revenues as compared to GDP growth, showing responsiveness of tax revenues to changes in overall economic activity. Buoyancy value greater than one implies that tax revenue grows faster than GDP.Direct tax buoyancy has remained comfortably above one in the last three years, rising from 1.27 in 2022-23 to a peak of 1.48 in 2023-24, before moderating to 1.39 in 2024-25—“still well above one”—government said in a note prepared for the Parliamentary Standing Committee on Finance.The government prepared the background note for the standing committee, led by BJP lawmaker Bhartruhari Mahtab, which is currently reviewing reforms in the direct tax regime and their impact. The government has been constantly reforming the direct tax regime that included systemic reforms, ease of compliance and substantial reductions in corporate and personal income-tax rates.In 2019, the government slashed the corporate tax rate for domestic manufacturing companies from 30% to 22%, and for new manufacturing firms from 25% to 15% to attract investments. The budget 2025-26 exempted individuals from paying income-tax for incomes up to ₹12 lakh under the new regime (effective exemption rose to ₹12.75 lakh for salaried taxpayers on account of the standard deduction).In order to simplify the income-tax regime and make it contemporary, the government replaced the erstwhile 1961 income tax law with the Income-tax Act, 2025 from 1 April 2026. “Together, these reforms aim to enhance voluntary compliance, reduce administrative burden, and foster trust between taxpayers and the government, ultimately strengthening revenue collection and economic growth,” the note said.Commenting on some of some of the key reforms, the panel in its 13th report on the ministry of finance’s demands for grants (2026-27) on March 11 said “strategic tax rate rationalization has yielded highly positive results”. Analysing data submitted to it by the department of revenue, it said this was evidenced by the gross tax-to-GDP ratio improving significantly from 10% in 2019-20 to an estimated 11.2% in the 2026-27 budget estimates (BE).“This indicates that simplifying the tax structure has successfully widened the tax base and improved compliance. The Committee desire that the Government stay on the course of rationalization and simplification across both direct and indirect taxes,” it added.Commenting on the upcoming rollout of the Income Tax Act, 2025, the panel said, it “presents a historic opportunity to further consolidate these gains. The Committee are of the belief that a stable, predictable and simple tax environment will invariably lead to sustained revenue buoyancy by transforming taxpayers from subjects of scrutiny into active partners in nation-building”.