Direct Tax Collections Surge Amid Refund Decline

The Income Tax Department of India recently reported that net direct tax collections have increased by 8% year-on-year, reaching ₹17.05 lakh crore during the period from April 1 to December 17 this year. This growth indicates a robust tax collection framework, even as the country faces various economic challenges.

However, the report also highlighted a significant decline in tax refunds, which fell by 13.5% to ₹2.97 lakh crore compared to the previous year. This reduction in refunds has created concern among taxpayers, particularly after the filing deadline for individuals and non-audit cases on September 16. Many taxpayers have taken to social media to express their frustrations over delayed refunds.

Central Board of Direct Taxes Chairman Ravi Agrawal mentioned that the Income Tax Department is analyzing refund claims that are considered high-value or flagged for potential fraud. This increased scrutiny aims to prevent fraudulent activities but has inadvertently led to delays in processing legitimate refunds. Tax experts warn that holding back refunds could increase litigation, creating further burdens on the tax department.

Despite the declining refunds, gross direct tax collections rose by 4.16% to ₹20.02 lakh crore during the same period. Corporate advance tax collections, which grew by 7.98%, suggest that the corporate sector is performing well. In contrast, non-corporate advance tax collections decreased by 6.49%, likely due to recent personal income tax cuts.

As December is also the month for the third installment of advance tax payments, the increase in advance tax collections to ₹7.88 lakh crore is encouraging. However, the overall decline in non-corporate collections raises concerns about the financial strain on individual taxpayers.

Looking ahead, the government is likely to face a shortfall in its tax revenue targets. With only a few months left in the financial year, it needs to collect an additional ₹8.15 lakh crore to meet its budget estimates. This situation is compounded by fiscal pressures arising from tax reductions under the Goods and Services Tax (GST) regime, lower nominal GDP growth, and lagging disinvestment proceeds.

According to Union Bank of India, the projected revenue shortfall for FY26 stands at around ₹53,000 crore. Nomura Global Markets Research further estimates that the revenue loss due to GST has been approximately ₹24,000 crore, highlighting the challenges the government faces in maintaining fiscal discipline.