The Government of India forewent ₹99,000 crore in corporate tax revenue during the financial year 2023–24, according to a written response by Minister of State (MoS) for Finance Pankaj Chaudhary in Parliament. This revelation came as part of the Tax Expenditure Statement released alongside the Union Budget documents for FY25.

The revenue loss is attributed to a combination of reduced corporate tax rates and legacy tax exemptions that continue to be claimed by some companies.

Corporate tax cut reforms began in 2016

India has undergone a progressive reduction in corporate tax rates since 2016, particularly with an emphasis on creating a more globally competitive business environment and boosting private sector investment.

In September 2019, the Government took a landmark decision to cut the base corporate tax rate to 22 percent for existing domestic companies and 15 percent for new manufacturing units, excluding surcharge and cess, provided these companies do not claim certain exemptions or incentives.

While the rate reduction was expected to improve ease of doing business and attract foreign direct investment (FDI), it also resulted in substantial revenue loss for the government.

Gradual phasing out of tax exemptions

In response to long-standing concerns about a complex and distortionary tax structure, the government initiated a plan to phase out corporate tax exemptions. Over the last several years, tax incentives, deductions, and sector-specific carve-outs have been either withdrawn or replaced with a more streamlined regime.

Despite this, several companies, especially older entities, continue to operate under the old tax regime, availing exemptions and deductions. These transitional provisions and special sectoral treatments contributed to the ₹99,000 crore revenue foregone.

According to the MoS Finance, “The Government is committed to a simpler, predictable, and fair tax regime. Over the years, corporate tax rates have been reduced while phasing out exemptions. However, companies opting for the old regime continue to benefit from certain legacy exemptions.”

Revenue forgone data from Tax Expenditure Statement

The Tax Expenditure Statement, part of the Union Budget FY25 documents, shows the following:

• Revenue foregone from corporate income tax in FY24: ₹99,000 crore

• Revenue foregone from personal income tax in FY24: ₹73,000 crore

• Total revenue foregone under direct taxes: ₹1.72 lakh crore

These figures reflect the cost of tax incentives and exemptions across sectors, including special economic zones (SEZs), infrastructure, R&D activities, and backward area development.

However, the government has argued that these exemptions, though costly, are often targeted towards long-term development goals and help drive industrial growth and job creation.

Who benefits from these exemptions?

Historically, sectors such as infrastructure, power generation, information technology, pharmaceuticals, and exports have benefitted from sector-specific tax exemptions. These include investment-linked deductions, accelerated depreciation, and tax holidays.

In addition, companies operating in special economic zones continue to enjoy significant benefits under Section 10AA of the Income Tax Act, which has contributed to the foregone revenue.

However, with the availability of the lower tax rate regime without exemptions, many new-age companies and startups are choosing the simplified system over the old regime.

Is the tax foregone worth the cost?

Economists and policymakers remain divided on whether the tax revenue forgone has yielded proportionate economic benefits. Some argue that lower tax rates and incentives have failed to significantly boost private investment, which remains subdued despite the reforms.

Others believe that the corporate tax rationalisation has helped improve India’s image among global investors and made Indian companies more competitive internationally.

A senior tax analyst at a leading consultancy said, “While ₹99,000 crore is a large number, it must be weighed against potential investment, job creation, and economic output that these tax cuts enabled. But the jury is still out on actual returns.”

Government exploring tax rationalisation

In response to parliamentary questions, the MoS Finance also stated that the government is continuously reviewing tax structures with the goal of creating a balance between revenue generation and investment promotion.

There have been discussions about further simplification of the tax code, closing loopholes that allow for excessive deductions, and promoting voluntary compliance by reducing litigation and administrative burdens.

At the same time, the Centre is under pressure to increase tax collections to fund social and infrastructure spending, especially in the wake of post-pandemic recovery needs and welfare schemes.

Conclusion

The ₹99,000 crore in corporate tax revenue foregone in FY24 highlights the revenue trade-offs involved in corporate tax policy. While the government aims to provide a business-friendly tax regime, it also faces the challenge of maintaining fiscal discipline and ensuring fair tax contribution by profitable corporations.

The debate between tax competitiveness and revenue adequacy is likely to intensify in the coming months as the government prepares for Budget 2026 and assesses the full impact of past tax reforms.

The Upcoming IPOs in this week and coming weeks are Takyon Networks, Mehul Colours, Aditya Infotech, Sri Lotus Developers & Realty, Lakshmi India Finance, Jyoti Global Plast, B.D. Industries (Pune), Kaytex Fabrics, Umiya Mobile, Shree Refrigerations, Sellowrap Industries, Repono, Shanti Gold International, Patel Chem Specialities, NSDL.

The Current active IPO are Brigade Hotel Ventures, Indiqube Spaces, GNG Electronics, TSC India, Monarch Surveyors & Engineering Consultants.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.