Indian Government Clarifies Advance Tax Collection Situation

by Amanda Banks, for LawAndTax-News.com, London

20 August 2008

India's Ministry of Finance this week addressed media reports predicting an economic slowdown, based on advance tax payments from companies during FY 2008-09.

The Ministry stated that during the April-July period of 2008, total direct tax collection showed 46.95% growth compared to the previous year.

Total direct tax collections comprise advance tax payments, tax deducted at source, self-assessment tax payments and post-assessment tax collections.

During the April to July 2008 period tax deducted at source on payments received by companies recorded an increase of 60.55%, acompared to a growth rate of 43% during the same period in the fiscal year 2007-08.

The Finance Ministry explained that:

"This unprecedented increase in TDS collections is reflected in a relatively lower growth rate of 24% in advance tax payments during the same period as against a growth rate of 28% during the same period in the fiscal year 2007-08."

"This trend is consistent with past experience."

It concluded by observing that:

"The trend of direct tax collections is one of the many indicators of the health of the economy. The robust growth of direct tax collections by 47% during April-July, 2008 is rather an indication of a buoyant economy."

"It is, therefore, inappropriate to use the growth rate in advance tax payments, in isolation, for analyzing the health of the economy."

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