Personal vs corporate tax: What you need to know ahead of Budget 2026-27
Personal income tax revenue surpassed corporate tax for the first time in 2023-24
Last Updated: Jan 27, 2026, 13:30 IST4 min
Prefer us on Google
Advertisement
As Minister of Finance Nirmala Sitharaman prepares to present the Union Budget 2026-27 in Parliament on February 1, India’s tax collections are shifting in significant ways. This will be Sitharaman’s ninth consecutive Budget presentation, and it comes at a time when India’s direct tax structure is showing a new trend: Personal income tax collections have overtaken corporate tax collections for the first time.
A report by JM Financial Institutional Securities, released in August 2025, flagged this as a structural transformation fuelled by a more formal economy, stronger digital tracking, and higher compliance, especially among salaried taxpayers and those whose incomes are easier to trace through the system.
What is direct tax?
Direct taxes are paid directly to the government by the person or entity earning the income. In India, the two biggest categories of direct tax are:
- Personal income tax: Paid by individuals on salaries and other income
- Corporate tax: Paid by companies on profits
PRS Legislative Research noted that income tax’s share in total direct taxes has increased over time, and by 2023-24, it made up 53 percent of total direct taxes, up from 47 percent in 2000-01.
Personal income tax: What is it and who pays it?
Personal income tax is charged on the income of individuals, including salary, professional income, capital gains, and income from interests on investments. India follows a progressive slab system, where higher incomes are taxed at higher rates.
In recent years, personal income tax collections have increased, and the most visible driver is the rise in salaried and formally declared income. According to the report by JM Financial Institutional Securities, declared salaries grew to Rs 35.2 trillion in FY23 from Rs 9.8 trillion in FY14, while personal tax collections rose to Rs 8.3 trillion from Rs 2.4 trillion for the same years.
What is corporate tax?
Corporate tax is levied on profits earned by companies. These collections can rise or fall with business profitability and economic cycles. PRS Legislative Research highlights the base is narrow at the top: In 2022-23, out of 1.07 million companies, just 743 firms (0.1 percent) with profits above Rs 500 crore accounted for 53 percent of corporate tax paid.
What changed?
In 2025, personal income tax collections crossed corporate tax collections for the first time. The two key mechanisms driving this are:
1) Tax deducted at source (TDS): A system where tax is deducted before the money reaches the taxpayer. For example: When your employer pays your salary, it deducts tax and deposits it with the government. When a bank pays interest on your deposits, it may deduct TDS, depending on rules and thresholds. TDS collections rose over the last decade to Rs 6.5 trillion in FY2023-24, from Rs 2.5 trillion in FY14.
2) Advance tax: This is paid in instalments throughout the year by taxpayers who expect their tax liability to be above a minimum level. This can often include professionals, freelancers, and businesses. Advance tax payments climbed to Rs 12.8 trillion in FY24 from Rs 2.9 trillion in FY14, a near fourfold increase.
TDS and advance tax, together, now contribute more than half of India’s total direct tax collections.
What Budget 2025-26 changed for personal tax
It made a major push towards making the new tax regime more attractive, proposing:
- Revised tax slabs
A 100 - percent rebate on taxable income up to Rs 12 lakh, which earlier applied only up to Rs 7 lakh
- No change in the old tax regime.
How many Indians pay income tax?
PRS Legislative Research estimates that the number of individuals filing Income Tax returns has grown steadily, but the base is still small relative to the country’s population. Individual return filers rose to about 6 percent (2023-24) from about 2 percent of the population (2013-14). Even among those who file, not everyone is liable to pay tax. Data shows that in FY23, 63 percent of individual filers had zero tax liability.
This means the direct tax burden is still concentrated among a smaller pool of consistent payers, particularly salaried taxpayers.
What is the Income Tax Act, 2025?
Last August the Income Tax Bill 2025 was introduced in the Lok Sabha. This came after an initial version of the Bill was presented and subsequently withdrawn from Parliament in February. The Bill was passed during the Monsoon Session of Parliament and is expected to take effect from April 1, 2026, the beginning of FY27. The Act aims “to consolidate and amend the law relating to income-tax” and replace the six-decade-old Income Tax Act, 1961.
It is revenue neutral, meaning it does not change tax rates, but aims to make the statute simpler and easier to interpret. The Act has cut the overall size of the legislation by about half and removed provisions considered obsolete. One of the biggest simplifications is a shift to a single “tax year” system, doing away with the distinction between “previous year” and “assessment year”. It also includes changes intended to reduce friction for taxpayers, such as enabling TDS refunds even when returns are filed after the deadline, without additional penal charges.
The Centre is expected to notify the new rules and updated forms after the Budget 2026-27, therefore any tax changes announced on February 1 will also be folded into this new framework.
First Published: Jan 27, 2026, 13:37
Subscribe Now- Home /
- Budget-2026 /
- Personal-vs-corporate-tax-what-you-need-to-know-ahead-of-budget-2026-27
Latest News
Advertisement
Advertisement
On Everyone’s Radar
Advertisement