India's tax collection growth weak in FY26, lags budget estimates

Central govt's tax collections in FY26 have remained weak, growing by just 3.3% in the first 8 months, far below the 12.5% budgeted estimate. A CareEdge report highlighted lagging direct taxes but expects a recovery in FY27.

The central government's tax collections have remained weak so far in the ongoing financial year 2025-26 (FY26), with growth significantly lower than budgeted estimates, but the situation is expected to improve in the next financial year, FY27, according to a report by CareEdge Ratings.

FY26 Tax Performance Below Budget

The report noted that gross tax collections have grown by just 3.3 per cent year-on-year during the first eight months of FY26, much lower than the budgeted growth of 12.5 per cent. This highlights the subdued performance of tax revenues in the current fiscal year so far.

It stated, "Direct tax collections have lagged in the year so far, with growth in corporate and income tax collections being lower than the budgeted annual growth".

The report pointed out that the budget had projected strong growth in both corporate tax and income tax; actual growth during April-November FY26 has remained lower. Corporate tax collections grew by 7.8 per cent compared to the budgeted growth of 9.7 per cent, while income tax collections rose by 6.8 per cent, far below the budgeted growth of 21.6 per cent. However, the report added that both income tax and corporate tax collections have shown some improvement in recent months.

Goods and Services Tax (GST) collections contracted by 2.0 per cent during the period, weighed down by rationalisation in the GST structure implemented at the end of September.

Projected Recovery in FY27

Looking ahead, the report expects tax collections to improve in FY27. Gross tax revenue is projected to rise to Rs 43.5 trillion in FY27, registering a growth of 9.6 per cent. Net tax revenue is also expected to increase by 9.6 per cent to Rs 28.9 trillion.

The report mentioned that the direct taxes are projected to grow by 11.0 per cent, supported by a recovery in income tax and corporate tax collections. Corporate tax is expected to grow by 12.0 per cent, while income tax collections are projected to rise by 10.2 per cent in FY27.

Indirect taxes are also expected to recover, with growth of 8.2 per cent projected for FY27. GST collections are likely to grow by 4.5 per cent, while customs duty collections are projected to rise by 9.2 per cent.

The report further noted that tax buoyancy is expected to improve to 0.95 in FY27, compared to 0.58 in FY26, indicating a better alignment between tax growth and nominal GDP growth in the coming fiscal year.

Overall Assessment

Overall, the CareEdge Ratings report indicated that tax collections in FY26 have remained under pressure due to slower growth in both direct and indirect taxes. The weak performance has raised the likelihood of a significant shortfall against budget estimates for the year. (ANI)

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