The central government may fall short of its FY26 direct tax collection target by ₹1.5–2 lakh crore, as slower corporate tax growth and tax relief measures for individuals weigh on overall revenue mobilisation.
The Revised Estimate (RE) for direct taxes has already been reduced by about ₹1 lakh crore from the original Budget Estimate, bringing the FY26 target to ₹24.21 lakh crore. To meet this revised goal, the tax department needs to collect around ₹4.77 lakh crore in the remaining weeks of the financial year, a challenging task given current collection trends.
As of February 10, net direct tax collections stood at ₹19.43 lakh crore, marking a 9.4% year-on-year increase compared to the same period last year.
Breakdown of Direct Tax Collections
Gross direct tax collections rose 4.09% year-on-year to ₹22.78 lakh crore. This includes:
- ₹10.88 lakh crore in gross corporate tax collections
- ₹11.39 lakh crore in gross non-corporate tax collections
Refunds issued during the period dropped sharply by 18.82% to ₹3.34 lakh crore, which helped lift net tax collections to ₹19.43 lakh crore.
While the growth in collections indicates steady revenue momentum, analysts warn that the current pace may not be enough to bridge the gap to the revised target.
Lower Refunds Inflating Net Tax Numbers
A key factor supporting net tax growth this year has been the sharp decline in refunds. Refund issuances fell by nearly 19% year-on-year, effectively boosting net collection figures.
Rohinton Sidhwa, Partner at Deloitte India, noted that both corporate and non-corporate tax growth remain subdued when compared to budget assumptions. He explained that although the government slightly increased the corporate tax target in the Revised Estimates, it cut the non-corporate tax target by around 8%.
As a result, the improved net collection figures are largely driven by lower refunds rather than strong underlying tax expansion, he added.
March Seen as Crucial for Meeting Target
Traditionally, March witnesses a surge in tax payments as businesses and individuals settle advance tax dues and finalise accounts. A strong last-month push could improve overall collections.
However, with moderating corporate earnings and tax relief measures reducing the burden on individuals, reaching the ₹24.21 lakh crore revised target will require a significant surge in March collections.
The final FY26 outcome will depend on whether the customary year-end momentum materialises or whether the fiscal year ends with a substantial shortfall.