Income tax relief hits government’s revenue; net direct tax collection up 8%

Refunds dip 13.5% on stricter scrutiny.

New Delhi: Net revenue collection from non-corporate direct taxes increased by a paltry 6.4 per cent in the current fiscal till mid-December, sharply lower than the budgetary target of 14.4 per cent growth, largely due to tax relief provided through the 2025-26 Budget.

Between April 1 and December 17, net direct tax revenue stood at Rs 17.04 lakh crore, which is 8 per cent higher when compared with the corresponding period of last year, as per data released by the Central Board of Direct Taxes (CBDT) on Friday.  

Mop up from corporate taxes stood at Rs 8.17 lakh crore and non-corporate taxes at Rs 8.47 lakh crore. Net revenue from Securities Transaction Tax (STT) stood at Rs 40,195 crore during the period under review.

On a year-on-year basis direct taxes paid by companies were 10.5 per cent higher, which is largely in line with the budgeted growth. However, collection from personal income tax has been far below the target. Even the 6.4 per cent growth was due to delays in refunds. At gross level collection from non-corporate taxes increased by a paltry 1.3 per cent year-on-year during the period under review.

“Overall the corporate advance tax increase signals good corporate earnings. Non-corporate advance tax collections have however declined possibly on the back of rate cuts for individuals given in the previous budget,” said Rohinton Sidhwa, Partner, Deloitte India.

In the Union Budget presented in February, the Central government provided major tax relief, effectively making individual income up to Rs 12 lakh a year tax free.

The Income Tax Department issued refunds worth Rs 2.97 lakh crore in the current fiscal till December 17, which is 13.5 per cent lower than the refunds issued during the corresponding period of last year.

“The drop in refunds is being attributed to a higher amount of screening of any fraudulent refund claims. Holding back refunds also accelerates litigation that the tax department can ill afford,” Sidhwa said. 

Vivek Jalan, Partner, Tax Connect Advisory, a multi-disciplinary tax consultancy firm, said the decline in refunds might be due to “stricter scrutiny of deductions availed of by taxpayers in their returns”.

Advance tax collections from companies rose by 4.27per cent while from non-corporate it was 6.49 per cent lower year-on-year.

According to analysts, marginal growth in gross collection from non-corporate despite lower advance collection indicates higher collection from tax deducted at source (TDS).

“While the advance tax collection from non-corporate has de-grown by 6.5 per cent, yet the tax collections correspondingly have grown by 1.5 per cent. This means that TDS for non-corporate have made up for the gap in growth,” said Jalan.

“While on the one hand one can understand the importance of TDS as a tax collection mechanism, yet on the other hand  it may also be possible that TDS rates may require further rationalisation taking into account the massive change in the tax slabs in the current budget,” Jalan added.

For the full year 2025-26, the government targets Rs 25.2 lakh crore revenue from direct tax collections. Till December 17, it has achieved 67.6 per cent of the target. In 2024-25, the mop up direct taxes stood at Rs 22.26 lakh crore.

Aditi Nayar, Chief Economist, ICRA, said there would be a sizable miss in personal income tax collections relative to the FY2026 Budget target of Rs 13.6 lakh crore, while the corporate tax collections are likely to broadly meet the budget estimate.

“A pickup in refunds would weigh on the growth in net non-corporate tax collections in the remaining part of the fiscal,” Nayar said.

However, Nayar added that higher dividends from the Reserve Bank of India and the central public sector enterprises are likely to help offset a portion of the miss-in tax collections.