India’s direct tax collections showed early signs of strain in the first five months of the ongoing fiscal year (2025-26), with higher refunds tempering revenue growth, data from the Income Tax Department showed on Tuesday.
Net collections, spanning corporate tax, non-corporate tax, securities transaction tax, and other levies, stood at ?6.64 trillion, down 3.95% from ?6.91 trillion a year earlier.
Refunds rose nearly 10% to ?1.35 trillion, a surge that may signal stronger compliance or weaker advance payments from top taxpayers.
Non-corporate tax, paid by individuals and smaller firms, the largest revenue source, fell to ?4.43 trillion from ?4.83 trillion.
Corporate taxes rose to ?3.33 trillion from ?3.08 trillion.
Securities transaction tax collections posted a modest gain, while receipts under “other taxes” dropped sharply to ?283 crore from ?1,636 crore.
The government is targeting ?25.20 trillion in direct taxes for FY26.
To meet its tax targets, the government will need strong double-digit growth in both corporate and personal income taxes to make up for sluggish advance tax receipts, hefty corporate tax refunds, and a delayed personal income tax filing deadline.
While challenging, income tax collections are expected to pick up as the year advances and the base effects ease.
“The tepid performance of advance tax collections seems to have been dampened by high refunds of corporation tax collections and a later deadline for personal income tax filings,” said Aditi Nayar, chief economist, ICRA Ltd.
“The available data on advance tax collections suggests that the [government’s] personal income tax and corporation tax collections are required to record a high double-digit growth in the remaining part of FY2026 to meet their respective FY2026 targets,” Nayar added.
“While this may seem challenging, the growth rates in net PIT (personal income tax) and CT (corporate tax) collections are likely to improve as the year progresses, and the base normalises,” she said.
Tax collections remain a cornerstone of the Indian government’s growth projections, providing the fiscal space needed to fund infrastructure, social welfare, and policy initiatives that drive economic expansion. Robust tax collections, both direct and indirect, signal healthy corporate earnings, resilient consumption, and the ongoing formalisation of the economy— factors that underpin confidence in official growth estimates.
This fiscal strength will be particularly crucial in FY26, as India navigates a choppier global environment marked by trade uncertainties and tariff-related headwinds following US President Donald Trump’s announcement of reciprocal duties in April.
The Reserve Bank of India (RBI) cut its FY26 growth forecast to 6.5% from 6.7%, citing global trade and tariff risks after the announcement.
Sustained revenue momentum will be key to cushioning the economy against these shocks and maintaining the pace of capital expenditure needed to support growth.
“Net direct tax collections for FY 2025-26, up to August 11, stood at ?6.64 lakh crore, marking a 3.95% decline from ?6.91 lakh crore recorded during the same period last fiscal. The year-on-year contraction is largely attributed to a combination of timing and structural factors," said Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm.
"Lower-than-usual advance tax inflows have been compounded by a sharp rise in corporate tax refunds, while the extension of the personal income tax return filing deadline to mid-September has delayed inflows from individual taxpayers," he added.
Ganesh Raj, Partner and Tax Policy Leader at EY India, noted that these early-year trends are typical, and the growth rate in direct taxes is expected to align more closely with the annual budget targets as the fiscal year progresses.
He explained that the 7.5% contraction in personal income tax collections partly stems from recent rate revisions and the extended deadline for filing returns, now set for 15 September 2025, instead of 31 July.
"Corporate tax revenues were negative in the initial months due to high refunds; however, collections now show a positive growth of 2.9%, improving from the (-)1.2% contraction in the first quarter. On an annual basis, direct taxes have consistently outperformed indirect taxes both in share of gross tax revenues (59% as per BE) and in robust growth rates (12.7% in BE)," he said.
He added that despite ongoing rate rationalization, direct taxes are expected to maintain a higher contribution to the Centre’s revenues compared to indirect taxes in FY26, reflecting a positive trend in “India’s tax progressivity”.
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