Direct tax collections hit ₹17 tn, but tax relief tempers revenue growth

The central government’s direct tax revenue collection, after adjusting for refunds, stood at ₹17 trillion in the April to mid-December period, rising 8% year-on-year, official data showed.

The growth was slower than the projected 13% increase, as tax relief granted to individuals moderated revenue growth from personal income taxes.

Data released by the Central Board of Direct Taxes (CBDT) on Friday showed that tax receipts from corporations and individuals between 1 April and 17 December accounted for about two-thirds of the full-year target of ₹25.2 trillion.

Companies paid a little over ₹8.17 trillion during the period after adjusting for refunds, registering a 10.5% increase year-on-year, in line with the growth rate projected in the Union budget for FY26, presented on 1 February.

Individuals have paid about ₹8.47 trillion so far this financial year after adjusting for refunds, marking a 6.4% annual growth. However, this is slower than the 14.4% growth projected for net personal income tax receipts this year.

In this year’s budget, the government lowered personal income tax slab rates and offered a rebate for individuals with income up to ₹12 lakh ( ₹12.75 lakh for salaried individuals) to boost household consumption, savings, and investment.

Revenue spending in focus:

While tax rate cuts implemented this year are expected to have some effect on growth rates in both personal income tax and GST revenue receipts, the Centre’s non-tax receipts have been robust so far. By October-end, the government collected nearly the entire ₹3.25 trillion target for the full year, as the Reserve Bank of India (RBI) has given ₹2.69 trillion as dividend, a 27% improvement from a year ago. Asset sales till March could also add to the government’s non-tax revenue this year.

Policymakers this year opted to give a fiscal stimulus by way of tax cuts and boost consumption demand in the economy, which could accelerate growth and make up for the short-term revenue impact, in due course.

The other factor impacting tax revenue buoyancy is disinflation. In the three months to November, consumer price index (CPI)-based inflation was below the central bank’s target range of 2-6%, with inflation reading at 0.71% in November. The Centre had assumed a 10.1% nominal GDP growth in the current year’s budget.

“Centre’s direct tax collection revenue is likely to be close to the levels budgeted as there are three more months to the fiscal year. Overall, the extra RBI dividend received will also help the fiscal calculations. The additional revenue collection from excise duty increase on tobacco and tobacco products and the health and national security cess when implemented will help to cushion any shortfall in Centre’s GST revenue collection. Whether the government meets the fiscal deficit target for the year will depend on how revenue expenditure is calibrated to manage whatever remaining revenue gap that may be there,” said D.K. Srivastava, EY’s chief policy advisor.

The Centre has projected a fiscal deficit of 4.4% of nominal GDP this year. The proposed excise duty increase and the health and national security cess on tobacco and products are meant to keep the taxes on demerit goods at current level once the GST compensation cess on them expires before the end of this fiscal.

CBDT data also showed that the tax department issued refunds worth ₹2.97 trillion so far this fiscal, 13.5% lower than the refunds issued during the same period a year ago.

At gross level, corporate tax collection grew 7.5%, and non-corporate tax, mainly individual income tax collection, grew 1.3% annually.

In the budgets for FY25 and FY26, the government rationalized tax deducted at source (TDS) and tax collected at source (TCS), which, according to officials, has led to reduced refunds this year.

The Centre collected ₹40,195 crore in securities transaction tax (STT) so far this year, a tad above the STT receipts from a year ago.

The government's net direct tax collection has increased 8% so far this year, mainly on account of reduction in refund disbursals, said Anita Basrur, partner at Sudit K. Parekh & Co. LLP, a chartered accountancy firm.

“The net advance tax collection for the year has grown by 4.27%. This mainly is on account of increased advance tax payments by corporations which is almost 8% as against a reduction in advance tax by non-corporate persons which has fallen by 6.5%. The reduction in non-corporate tax collection is mainly on account of new personal tax regime where there was reduction in rates across slabs,” said Basrur.

Sachin Garg, partner at Nangia & Co LLP, said the 8% net annual growth in direct tax collection was made possible by strong corporate tax growth and a reduction in refunds paid.

Corporations led the way in advance tax collections, with an 8% annual growth so far this fiscal to ₹6.07 trillion, which is a significant growth, said Garg.

“Even though non-corporate advance tax collection fell by 6.5%, the aggregate advance tax collection still grew by 4.27%. Overall, the growth in direct tax collections represents steady economic activity and is a healthy sign for the economy,” said Garg.

The income tax department is currently engaging with taxpayers to encourage voluntary compliance wherever gaps are detected in tax returns, and remains hopeful of meeting its direct-tax collection target by the end of the financial year, CBDT chairman Ravi Agrawal said on 17 November.

The department is holding outreach programmes to promote voluntary compliance, he added, Mint reported that day.

On 28 November, the income tax department launched a campaign, nudging about 25,000 high-risk assessees to come clean about their undisclosed foreign income and assets that the tax authority came to know about from information shared by its peers in other countries. The campaign involves sending text messages and emails to identified taxpayers, advising them to voluntarily review and revise their tax returns before the end of December to avoid penalties.