Govt lost Rs 2.21 lakh crore in FY24 by providing exemptions to individual taxpayers

The government lost Rs 2.21 lakh crore in FY24 by providing tax incentives to individual and Hindu Undivided Family (HUF) taxpayers, according to official Budget data.

The revenue foregone from individual tax incentives climbed 42% over four years, from Rs 1.55 lakh crore in FY20 to Rs 2.21 lakh crore in FY24, according to data released by Ministry of Finance.

Over the same period, corporate tax incentives were volatile but broadly flat, totalling Rs 4.53 lakh crore between FY20 and FY24, compared with Rs 8.69 lakh crore for individuals.

Corporate revenue foregone jumped sharply in FY22 to Rs 96,892 crore as profits rebounded after the pandemic, before easing to Rs 88,109 crore in FY23 and rising again to Rs 98,999 crore in FY24.

A significant share of individual tax exemptions came from Section 87A rebate, standard deductions for salaried taxpayers under the new regime, higher basic exemption limits, and tax-free thresholds. Additional relief flowed from exemptions on leave encashment, gratuity and employer contributions to retirement schemes such as NPS.

For companies, major exemptions historically came from accelerated depreciation, profit-linked deductions for infrastructure and power projects, export-linked incentives and sector-specific tax holidays, though their relevance has been steadily declining due to migration to lower-rate corporate tax regimes.

The inflection point was FY21, when pandemic-hit profits and incomes triggered a sharp contraction in both segments. Corporate revenue foregone fell to Rs 75,218 crore from Rs 94,110 crore a year earlier, while individual relief dropped to Rs 1.28 lakh crore from Rs 1.55 lakh crore.

The gap widened sharply post-Covid. In FY22, corporate incentives rebounded to Rs 96,892 crore, but declined again in FY23 to Rs 88,109 crore despite economic growth. The drop coincided with accelerated migration of companies to the lower 22% tax regime, which disallowed traditional exemptions in exchange for simpler, lower rates.

By contrast, individual tax relief accelerated. Foregone revenue rose from Rs 1.68 lakh crore in FY22 to Rs 1.96 lakh crore in FY23, and further to Rs 2.21 lakh crore in FY24. The surge followed policy changes that expanded standard deductions and widened rebate thresholds, effectively removing a large segment of middle-income earners from the tax net.

Over five years, the government has foregone more than Rs 13.2 lakh crore in direct tax revenue, with individuals accounting for nearly two-thirds of the cost.