Net direct tax collections fall 1.34% even as gross mop up, refunds rise in FY26

India’s direct tax kitty has shown a mixed picture in the current financial year so far, with gross tax collections inching higher but net collections slipping into negative territory due to a sharp surge in refunds.

According to official data released as of July 10, gross direct tax collections for FY26 stood at Rs 6.64 lakh crore, marking a 3.17% increase over the Rs 6.44 lakh crore collected during the same period last year. This growth reflects a steady uptick in economic activity, despite global uncertainties and ongoing domestic challenges.

The growth was primarily driven by corporate tax receipts, which rose to Rs 2.89 lakh crore in FY26, up from Rs 2.64 lakh crore in the previous year. However, non-corporate tax collections, comprising taxes paid by individuals, HUFs, firms, and other entities, recorded a marginal dip, moving from Rs 3.61 lakh crore last year to Rs 3.56 lakh crore this year.

This could be due to the non-availability of Excel utilities for ITR-2 and ITR-3. The Income Tax Department on Friday, July 11, rolled out the Excel utilities for ITR-2 and ITR-3 for Assessment Year 2025-26. Taxpayers can now download these tools to file returns for FY 2024-25 from the official portal, incometax.gov.in. Earlier, the department had already released the utilities for ITR-1 and ITR-4.

Interestingly, collections under Securities Transaction Tax (STT) continued their robust performance, climbing to Rs 17,874 crore, compared to Rs 16,632 crore a year earlier. Other taxes contributed Rs 273 crore to the gross collection tally.

However, the surge in refunds has significantly impacted net collections. Refund payouts soared to Rs 1.02 lakh crore as of July 10, FY26—a sharp 38% jump from Rs 73,893 crore disbursed during the same period in FY25. The Income Tax Department attributes this spike in refunds to improved taxpayer services and faster processing systems, ensuring quicker issuance of dues to taxpayers.

As a result, net direct tax collections for FY26 slipped by 1.34% to Rs 5.63 lakh crore, compared to Rs 5.70 lakh crore during the corresponding period last year. The dip underlines how aggressive refund processing has temporarily weighed on the government’s net tax receipts, even as gross collections remain healthy.

While the higher refunds signal efficiency and are likely welcomed by taxpayers, they also pose a challenge for the Centre’s fiscal arithmetic in the near term, particularly amid ambitious spending plans and the need to maintain fiscal discipline.

Nevertheless, tax officials remain optimistic about meeting the annual direct tax targets, banking on sustained economic recovery and increased compliance. The interplay between robust collections and timely refunds will be closely watched in the coming months as policymakers balance revenue generation with taxpayer-friendly measures.

The trends so far suggest a tax administration increasingly focused on prompt service delivery while navigating the complex terrain of fiscal management in a recovering economy.