Advance tax collections at the close of the third instalment in the ongoing financial year have shown a significant slowdown, growing by a little over 4%, as per data released by the Income Tax Department. This marks a steep decline from the around 21% growth recorded during the same period last year.
The muted performance has triggered concerns over whether net direct tax collections will meet the Budget Estimate, although officials remain hopeful of achieving the Rs 25.20 lakh crore target for FY 2025-26, including Securities Transaction Tax, on the back of strong final-quarter inflows.
Corporate Taxes Hold Up, Non-Corporate Segment Weakens
A closer look at the data reveals contrasting trends across taxpayer segments.
Advance tax payments by corporate assessees rose by nearly 8%, reaching over Rs 6.07 lakh crore, reflecting relatively stable corporate earnings despite a challenging economic environment. In contrast, non-corporate tax collections fell by around 6.5% to over Rs 1.81 lakh crore.
The non-corporate category comprises individual taxpayers, HUFs, partnership firms, associations of persons, bodies of individuals, local authorities and artificial juridical persons, making it a key indicator of household-level tax capacity.
Tax Relief Measures Likely Impacting Collections
Although the Income Tax Department has not officially commented on the slowdown, tax experts believe the trend is largely influenced by income-tax relief announced in recent Budgets, along with GST rate reductions, which may have softened tax outgo for individuals and affected corporate margins.
Experts point out that while the rise in corporate advance tax suggests earnings resilience, the drop in non-corporate payments reflects the impact of lower personal tax rates and revised slabs.
Net Direct Tax Collection Remains in Positive Territory
Despite the slower advance tax growth, overall net direct tax collections (gross collections minus refunds) between April 1 and December 17 stood at over Rs 17.04 lakh crore, registering an 8% year-on-year increase over Rs 15.78 lakh crore collected during the same period last year.
Interestingly, this is the second consecutive month of decline in tax refunds, indicating tighter scrutiny by the tax department.
Refund Delays Add to Compliance Stress
Tax professionals note that refund issuance has dropped sharply compared to last year, even as total collections have inched up. The decline in refunds is being attributed to heightened screening of suspected fraudulent claims.
However, experts warn that delays in releasing genuine refunds could escalate disputes and litigation, a situation the tax administration may find difficult to manage amid its ongoing drive to reduce tax disputes.
Budget Targets and Buoyancy Under Watch
According to the Budget Estimates for FY 2025-26:
- Corporation tax is pegged at Rs 10.82 lakh crore, implying a 10.4% growth over FY 2024-25 revised estimates.
- Taxes on income (excluding STT) are estimated at Rs 13.60 lakh crore, reflecting a 13.1% growth.
- The implied buoyancy of 1.30 is lower than the five-year average of 1.74, suggesting a more conservative outlook on revenue growth.
Final Quarter Crucial for Meeting Targets
With advance tax growth weakening and non-corporate collections under strain, the final quarter assumes critical importance. Strong March-end payments and calibrated refund management will be decisive in determining whether the government can bridge the gap and meet its ambitious direct tax targets for the year.
CAclubindia
