Net direct tax collections rise 7% as refunds slow and income growth stays steady

By: Team India Tracker

Non-corporate tax receipts rose 9% to Rs 7.19 lakh crore, outpacing corporate growth of 5.7% to Rs 5.37 lakh crore—signalling steady household and self-employment incomes despite softer profits

The direct tax collections are growing at a slower pace this year, but the underlying numbers show a steady, broad-based income trend that signals economic stability. As of November 10, net direct tax receipts stood at Rs 12.92 lakh crore, up 7% year-on-year, according to provisional figures from the Central Board of Direct Taxes (CBDT). The increase came largely from personal income taxes and a sharp drop in refunds, which lifted net inflows despite softer corporate earnings. 

The pace of expansion has cooled compared with last year’s 13.6% rise, reflecting a normalisation after two years of strong post-pandemic growth. Even so, the government’s ambitious target of Rs 25.2 lakh crore in direct tax collections for FY26—about 13% higher than the Rs 22.26 lakh crore collected in FY25—still looks achievable if income growth remains steady through the remainder of the fiscal year. 

Personal taxes lead the way 

The strongest growth has come from individuals and smaller entities. Collections from non-corporate taxpayers rose nearly 9% to Rs 7.19 lakh crore, while corporate tax receipts increased a more modest 5.7% to Rs 5.37 lakh crore. This divergence suggests that household incomes and self-employment earnings are holding up well even as company profits have moderated. 

The pattern indicates that the consumption-driven economy continues to generate taxable income across a broad base of salaried and small-business earners. Despite last year’s reductions in personal tax rates, the overall inflow has stayed resilient, hinting at rising real incomes and stronger compliance. In effect, more people are earning enough to enter the tax net, and those already in it are contributing more. 

Market malaise drags on STT  

While personal and corporate taxes provided stability, revenues from the securities transaction tax (STT) weakened slightly, dropping 0.67% to Rs 35,682 crore. The decline mirrors the subdued performance of equity markets in recent months, with benchmark indices largely flat and trading volumes lower. However, analysts expect some recovery later in the fiscal year as a pipeline of initial public offerings (IPOs) comes to market, potentially lifting STT inflows in the second half. 

Fewer refunds boost net collections 

Gross direct tax collections rose just 2.15% to Rs 15.35 lakh crore, but net receipts were helped by a sharp decline in refunds. Refund outflows fell nearly 18% to Rs 2.42 lakh crore, mainly because fewer refunds were issued to individual taxpayers. Corporate refunds increased slightly to Rs 1.54 lakh crore, but those to non-corporate entities fell by almost 38% to Rs 88,548 crore. 

The fall in refunds appears to be linked more to timing than policy tightening. The CBDT extended filing deadlines this year—non-audit individuals could file until mid-September instead of July-end, and companies have until December 10. As a result, many refund claims are being processed later than usual. Several refunds were also cleared earlier in the fiscal year, creating a statistical dip in the latest data. 

Impact of tax rate changes 

Lower personal tax rates under the revised tax regime have slightly trimmed inflows from individual taxpayers. However, the overall expansion in non-corporate receipts suggests that rising employment, expanding self-employment income, and stronger compliance are offsetting the rate reductions. 

The numbers point to a shift in the composition of India’s tax base. The reliance on large corporate taxpayers is gradually easing as more individuals and small firms contribute a growing share. This diversification makes collections more resilient to cyclical downturns in corporate profitability, particularly at a time when manufacturing and exports are facing headwinds. 

Broader fiscal implications 

The steady direct tax performance offers reassurance amid global uncertainty and fluctuating commodity prices. The government’s fiscal math increasingly depends on consistent direct tax inflows to balance welfare spending and infrastructure investment while keeping the deficit under control. 

The data also suggest progress in widening the tax net—an area where India has traditionally lagged. Rising digital compliance, wider use of e-filing, and data-driven scrutiny have improved collection efficiency. If this momentum continues, the government may not need to rely as heavily on borrowing to fund spending. 

With filing season still underway and refunds likely to pick up in the next quarter, the second half of FY26 will be crucial. Economists expect overall growth in collections to stabilise once pending refunds are cleared and corporate profitability begins to improve. 

While the pace is slower than last year’s surge, the underlying resilience of income-driven tax growth signals that India’s economic engine remains intact. The mix of stable employment, rising consumption, and improving compliance has provided a solid floor for revenues—even in a softer growth environment.