Winning Bizness Economic Desk

Mumbai. India’s direct tax revenue for the first seven months of FY 2025-26 rose by 7 percent, reaching Rs 12.92 lakh crore between April and October. The data, released up to November 10, shows a steady rise from Rs 12.07 lakh crore collected during the same period last year. However, the growth story comes with a contrasting trend—refunds issued during this period dropped sharply by 17.7 percent, totaling Rs 2.42 lakh crore compared to Rs 2.94 lakh crore a year ago. The figures point towards better earnings among salaried individuals and small business owners, alongside tighter refund processing by the government.

Strong performance in direct tax collection

Direct tax collections comprise two major components—personal income tax and corporate tax—along with the Securities Transaction Tax (STT). The increase in the net collection indicates a broader improvement in income levels, especially among the non-corporate segment. Personal income tax contributions have shown resilience despite earlier tax rate cuts, suggesting higher incomes among employees and small business operators.

Comparison with last fiscal period

Gross direct tax collection rose by 2.15 percent to Rs 15.35 lakh crore during April-October 2025, compared to Rs 15.02 lakh crore in the corresponding period last year. Out of this, Rs 2.42 lakh crore were issued as refunds, marking a decline of nearly one-fifth from the previous year. The Securities Transaction Tax (STT) component stood at Rs 35,682 crore, slightly lower than Rs 35,923 crore in 2024. The flat trend in STT reflects cautious activity in the stock markets.

Why tax collection grew this year

The 7 percent increase in tax revenue can largely be attributed to improved earnings of salaried individuals and stronger profits reported by small business owners. Experts say that steady employment growth, better compliance, and digital tax filing systems have contributed to the steady rise in net tax inflows. This improvement has come despite the government maintaining relatively stable tax rates.

Reasons behind the sharp fall in refunds

Two main reasons appear to explain the decline in tax refunds. Firstly, as incomes among the salaried class and small business owners increased, their tax liabilities also balanced out, reducing the number of excessive payments eligible for refund. Secondly, the government has become more cautious this year in processing refunds. Stricter verification procedures have been introduced to prevent fraudulent refund claims, leading to longer processing times and fewer disbursements.

Positive economic signals but mixed implications

The growth in net direct tax collection is viewed as a healthy sign for India’s economy, indicating improved income generation and stronger compliance. However, the slowdown in refund processing could affect taxpayers’ confidence if delays continue. Analysts also note that the flat trend in STT suggests limited movement in equity markets, though an expected surge in IPOs could revive STT revenues in the coming quarters.

Future outlook and digital reforms ahead

The government aims to further digitize the tax system to enhance transparency, improve compliance, and speed up refund processing. Officials believe these steps will help streamline the system while ensuring fraud-free refunds. With economic activities picking up and corporate earnings strengthening, experts expect direct tax collections to continue on an upward trajectory through the remainder of the fiscal year.

Summary pointers

• Direct tax collection rises 7 percent to Rs 12.92 lakh crore in April-October 2025.
• Refunds drop 17.7 percent to Rs 2.42 lakh crore compared to last year.
• Gross collection touches Rs 15.35 lakh crore, showing moderate 2.15 percent growth.
• Salaried employees and small business owners lead the revenue increase.
• Government tightens refund verification to prevent fraudulent claims.
• Flat STT trend points to subdued stock market activity.
• Future IPO boom and digital reforms may further boost collections.