Amid a dip in tax collections relative to the Budget Estimates, refunds of direct taxes have slowed.
According to the Central Board of Direct Taxes (CBDT) data, the government released refunds of Rs 3.11 lakh crore as on January 11 in the current financial year against Rs 3.75 lakh crore during the corresponding year-ago period, a contraction of 16.92% on year.
The decline in refunds was particularly pronounced in the non-corporate segment, which fell 25% to Rs 1.71 lakh crore while the corporate tax refunds dropped 10% to Rs 1.83 lakh crore till January 11 in the current financial year.
Corporate vs. Individual
The non-corporate tax includes taxes paid by individuals Hindu Undivided Families, firms, local authorities and artificial juridical persons, association of persons and body of individuals. The direct tax collection after refunds till January 11 of the current financial year recorded a growth of 8.82% on-year. The collections (after refunds) reached at Rs 18.37 lakh crore, 73% of the FY26 target of Rs 25.2 lakh crore. The corporate tax collection was Rs 7.67 lakh crore and the non-corporate tax collection was Rs 8.73 lakh crore.
In FY25, the refunds recorded a growth rate of 42.49% to Rs 3.74 lakh crore till January 12. The non-corporate tax recorded a growth of 22.52% while the refunds in the corporate tax segment had increased by 65% as on January 12 in FY25.
The total refunds in FY 24 and FY23 stood at Rs 2.62 lakh crore and Rs 2.40 lakh crore, recording a growth of 3.3% and 58.7% respectively.
As per income tax data, there are 136.7 million registered users as on January 24 with 88.2 million income tax returns (ITR) filed and 87 million ITRs verified. Out of the verified ITRs, 81.8 million ITRs have been processed for the assessment year 2025-26. However, tax experts said that there are still lakhs of taxpayers yet to receive refunds.
An tax expert, said the refunds contraction so far in FY26 contrasts with strong growth rates in recent years. He said that the decline appears largely procedural. The Income-Tax department’s stricter refund filters and heightened verification ( for revised return filing till 31 Dec 2025), together with a large backlog of unprocessed returns (over 6.1 million returns for AY 2025-26), have slowed the refunds.
“Changes in tax deducted at source/ tax collected at source rules and a shift in the mix of taxpayers (stronger corporate collections) are likely secondary contributors,” he said, adding that there is no clear or official evidence that migration to the new tax regime by the individual taxpayers is the main cause for this.
Scrutiny Factor
In December, the CBDT launched a nudge (Non-intrusive Usage of Data to Guide and Enable) campaign to encourage taxpayers to voluntarily review ineligible claims for deductions and exemptions in their ITRs for AY 2025-26. The CBDT had said in a statement certain taxpayers have claimed ineligible refunds by availing deductions or exemptions to which they are not entitled.
The I-T department has identified cases under the risk management framework. It said the framework included instances where “bogus donations to Registered Unrecognised Political Parties (RUPPs) and other ineligible deductions or exemptions appear to have been claimed in the ITRs”. In some of the cases, incorrect PANs or invalid PANs of donees were quoted, the CBDT had said in a statement.
Source from: https://www.financialexpress.com/money/direct-tax-refunds-fall-17-as-tax-revenues-falter-4118985/
