India’s net direct tax collection for the financial year 2025–26 has dropped by 3.95%, reaching ₹6.64 lakh crore compared to ₹6.91 lakh crore collected during the same period in FY25. The decline, according to the government’s data released on August 12, 2025, is primarily due to a significant rise in refunds issued to taxpayers.
Understanding Direct Taxes
Direct taxes are those paid directly by individuals, companies, and other entities to the government on their income and profits. They include:
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Corporate Tax – paid by companies.
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Personal Income Tax – paid by individuals, Hindu Undivided Families (HUFs), and firms.
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Securities Transaction Tax (STT) – levied on the sale and purchase of securities in the stock market.
Breakdown of Collections (April 1 – August 11, 2025)
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Net Direct Tax Collection: ₹6.64 lakh crore (down 3.95% from ₹6.91 lakh crore in the same period last year).
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Net Corporate Tax Collection: ₹2.29 lakh crore.
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Net Non-Corporate Tax Collection: ₹4.12 lakh crore (includes individuals, HUFs, and firms).
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Securities Transaction Tax (STT) Collection: ₹22,362 crore.
Impact of Higher Refunds
One of the major reasons for the drop in net tax collection is the 10% increase in refunds issued so far this fiscal, which have touched ₹1.35 lakh crore.
Refunds are provided when taxpayers have paid more than their actual tax liability through advance tax or Tax Deducted at Source (TDS). These refunds reduce the net revenue available to the government, even if gross collections remain strong.
Gross Tax Collections Before Refunds
If we consider collections before refunds, the gross direct tax collection stood at ₹7.99 lakh crore, marking a 1.87% decline compared to ₹8.14 lakh crore in the same period of FY25.
Government’s Fiscal Targets for FY26
The Union Government has set ambitious targets for FY26:
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Total Direct Tax Collection Target: ₹25.20 lakh crore (12.7% increase year-on-year).
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Securities Transaction Tax Target: ₹78,000 crore for the full year.
Officials believe these targets can be achieved through economic growth, improved tax compliance, and enhanced digital tax administration systems.
Significance and Economic Implications
The dip in net tax collection in the first few months of FY26 may seem concerning, but the increase in refunds reflects the government’s commitment to speedier tax return processing and taxpayer services.
However, meeting the ₹25.20 lakh crore target will require a strong uptick in tax collections in the second half of the fiscal year. Economic expansion, corporate profitability, and robust capital market activity will be key drivers in achieving this goal.