India’s advance tax receipts grew at a slower 19% during the first quarter (April to June) of the current fiscal year compared to 33% last year — an indication that high interest rates and costlier inputs were hurting corporate profitability.
The Reserve Bank of India raised the repo rate — the rate at which banks borrow from the RBI — by 0.25 percentage points on Thursday to combat inflation that surged to 9.06% in May.
A higher repo raises banks’ borrowing costs, which affects home, auto and corporate loans.
Firms pay advance tax every quarter based on their projected income of the year and a slower growth in these reflects signs of weakening corporate income.
India’s factory output grew 6.3% in April, less than half from last year’s 13.1%, mirroring signs of an industrial slowdown.
“Last fiscal the first quarter advance tax growth was higher due to high payments made by the corporate sector,” Central Board of Direct Taxes (CBDT) chairman Prakash Chandra said on Saturday. His remarks followed reports quoting unnamed finance ministry officials that stated that India’s firms paid 77% more in advance taxes in the first quarter this year compared to last year.
The tax department has received a net collection of Rs31,262 crore till Friday as advance tax against Rs26,293 crore a year ago, he said. On Friday, a finance ministry official said advance payments till June 16 stood at Rs30,399 crore, which represents a 76.8% growth, year-on-year.
CBDT officials clarified on Saturday that the comparison was incorrect. The tax data that came in on June 16 this year would have come three days later last year because of the use of advanced online tax accounting system in the current year.