Tax Taper: India’s Direct Collections Slip 1.3% Amid Refund Surge and Salary Relief

India's net direct tax collection for FY26 (April 1-July 10) declined slightly by 1.3% year-on-year to Rs 5.6 trillion. The decline is due to a mix of factors including increased levels of refunds, relaxed personal tax slabs, and corporate capex-related deductions.

Key Takeaways

Gross collection of direct taxes grew 4.86% YoY to Rs 5.45 trillion

Net collections reduced due to 58% increase in refunds, which totaled Rs 86,385 crore

Corporate tax collection declined 5.13% YoY to Rs 1.72 trillion

Non-corporate tax (including personal income tax) rose by 0.71% to Rs 2.72 trillion

Securities Transaction Tax (STT) rose 12.13% to Rs 13,013 crore

Underlying Factors

Reduced tax slabs effective April 1, 2025, reduced TDS from salaried taxpayers

Capex allowances allowed under the Income Tax Act lowered taxable corporate profits

Advance tax growth slowed down to 3.87% YoY, from 27.34% in the same period last year

Corporate advance tax rose by 5.86%, while non-corporate advance tax fell by 2.68%

Market Sentiment & Outlook

Experts interpret the jump in refunds as an indication of greater processing efficiency

The Centre is working towards its FY26 target of Rs 25.2 trillion of net direct tax collections

Finance Ministry to review zone-wise trend in collections and litigation arrears next week

Sources: Economic Times, Business Standard, Financial Express, Press Information Bureau, EY India, Deloitte India