The government is facing pressure over falling direct tax revenues, with the latest data showing a dip in collections due to a notable rise in tax refunds. In the current financial year so far (2025–26), net direct tax collection has dropped by 3.95% to ₹6.64 lakh crore, compared to ₹6.91 lakh crore in the same period last year.

The worrying part for the Centre is that gross collections before refunds have also slipped — down 1.87% to ₹7.99 lakh crore from last year’s ₹8.14 lakh crore — signaling an overall slowdown in inflows.

Refunds on the Rise

Tax refunds this year have surged by 10% to ₹1.35 lakh crore, which has directly reduced the net inflows. Direct taxes include income from companies, individuals, professionals, and other entities.

• Net corporate tax collection: ₹2.29 lakh crore

• Net non-corporate tax (individuals, HUFs, etc.): ₹4.12 lakh crore

• Securities Transaction Tax (STT) collection: ₹22,362 crore (from April 1 to August 11)

Big Target, Growing Worry

The government aims to collect ₹25.20 lakh crore in direct taxes for FY 2025–26 — a 12.7% increase over last year — with ₹78,000 crore expected from STT alone. But with both gross and net collections weakening and refunds climbing, achieving this ambitious target could prove challenging.

What’s Driving the Concern

• Dip in gross tax collections, not just post-refund figures

• Higher refunds cutting into overall revenue

• Possibility of missing annual tax targets if the trend persists

The figures suggest that beyond the impact of refunds, underlying factors such as economic slowdown, compliance behaviors, and corporate profitability might also be affecting revenue flows. Policymakers will be watching closely in the coming months to see if collections pick up pace to meet the ambitious goal.