Higher refunds drive down net direct tax collections despite gross tax receipts growing 3.2% year-on-year

India’s net direct tax collections stood at ₹5.63 lakh crore as of July 10, 2025, marking a 1.34% decline from ₹5.70 lakh crore in the same period last year, according to the latest data released by the Ministry of Finance.

This drop in net collections is primarily attributed to a sharp 38% rise in tax refunds, which amounted to ₹1.02 lakh crore so far this fiscal, up from ₹73,913 crore in the corresponding period last year.

Gross Direct Tax Collections Grow 3.2% YoY

Despite the dip in net collections, gross direct tax receipts (before refunds) showed positive momentum, growing 3.17% year-on-year to ₹6.65 lakh crore — compared to ₹6.44 lakh crore collected during the same period last year.

Direct taxes include:

• Corporate Tax: Net collections stood at around ₹2 lakh crore

• Personal Income Tax & Others: Netted ₹3.45 lakh crore

• Securities Transaction Tax (STT): Collected ₹17,874 crore

Refunds Surge to Over ₹1 Lakh Crore

The significant increase in refunds, which crossed ₹1.02 lakh crore, is being seen as part of the government’s move to streamline compliance and reduce taxpayer grievances.

“This year’s refund activity is notably higher, reflecting efficient tax processing systems and faster return settlements,” said a senior tax official.

FY26 Targets: 12.7% Growth in Direct Taxes

For the full fiscal year 2025–26, the government has set an ambitious target of ₹25.20 lakh crore in direct tax collections, representing a 12.7% increase over FY25.

The government also aims to collect ₹78,000 crore through Securities Transaction Tax (STT) in FY26.

Outlook

While the current decline in net collections may seem concerning, tax experts believe the surge in refunds is a sign of administrative efficiency rather than a slowdown in tax compliance. As the fiscal progresses and advance tax inflows pick up, the numbers may realign with the government’s projected target.

Source: MoneyControl