Direct taxes now account for 58.5% of total tax collections, with non-corporate taxes the dominant contributor. In indirect taxes, GST is now the most buoyant revenue source. This suggests an improvement in the progressivity of the tax system, explain Richa Sawhney & Manoj Mishra

l Direct tax collection trends
INDIA’S TAX COLLECTIONS have exhibited a sustained upward trajectory over the past decade, increasing from Rs 12.45 lakh crore in FY15 to around Rs 44 lakh crore by FY25. While indirect taxes accounted for a relatively higher share of total tax revenues in FY17 and FY21, this pattern has reversed in recent years, with direct taxes’ share of total tax revenues being nearly 58.5% in FY25.

From a distributional perspective, this shift is significant as direct taxes are inherently progressive, as they are linked to income and profitability, whereas indirect taxes are considered to be regressive, disproportionately affecting lower-income households through consumption. The rising share of direct taxes suggests an improvement in the progressivity of the tax system, with positive implications for equity and the overall incidence of taxation.