Advance Tax Growth Slows To 3.87% In Q1 FY26

India’s advance tax collections in the first quarter of FY26 rose by only 3.87% to Rs 1.55 lakh crore — a sharp drop compared to the strong 27% growth seen in Q1 of FY25.

Corporate Tax Rises, But Non-Corporate Tax Falls

As per data released by the Income Tax Department:

Corporate advance tax collections increased by 5.86%, totaling Rs 1.22 lakh crore.

However, non-corporate advance tax payments fell by 2.68%, down to Rs 33,928 crore.

This dip in payments from non-corporate taxpayers — such as small businesses, professionals, and individual filers — is a key reason behind the overall slowdown.

Net Direct Tax Collections Down 1.3%

India’s net direct tax revenue for FY26 so far (up to June 19) stood at Rs 4.58 lakh crore, marking a 1.3% decline from Rs 4.65 lakh crore collected during the same period last year.

The primary reason for the drop is the sharp increase in tax refunds.

Refunds Surge Over 58%

The Income Tax Department reported that tax refunds rose by 58.04%, reaching Rs 86,385 crore, compared to Rs 54,661 crore during the same period of FY25.

Officials credit this surge to faster return processing and improved taxpayer services, which have been made more efficient through automation and upgraded systems.

Gross Direct Tax Collections Still in Positive Territory

Before deducting refunds, gross direct tax collections for FY26 stood at Rs 5.45 lakh crore, showing a 4.86% growth over the Rs 5.2 lakh crore collected in Q1 of FY25.

This indicates that, despite weaker advance tax growth, corporate tax contributions are holding up reasonably well.

Why Advance Tax is Important

Advance tax is paid by taxpayers who expect their tax liability to exceed Rs 10,000 in a financial year. These payments are made in installments and apply to:

Companies

Freelancers

Professionals

Traders

High-income individuals

Advance tax collection is considered a barometer of income growth and business sentiment. A slowdown may signal reduced earnings or cautious outlooks, particularly from smaller entities and individuals.

Direct Taxes and the Fiscal Deficit

Direct taxes such as income tax, corporate tax, capital gains tax, and others form the backbone of India’s revenue system.

For FY26, the Union Government aims to reduce the fiscal deficit to 4.4% of GDP, down from 4.8% in FY25. Lower net tax collections could challenge this target unless revenue rebounds in the coming quarters.

Core Sector Growth Slumps to 9-Month Low at 0.7% in May 2025

India’s core sector growth dropped sharply to just 0.7% in May 2025 — the lowest in nine months — driven by a steep decline in electricity and fertiliser production. Adding to concerns, bank loan growth also eased to 9.0%, indicating a broader slowdown in industrial and credit activity.

Final Thoughts

The 3.87% growth in advance tax collections in Q1 FY26 marks a noticeable slowdown, especially in contrast to the 27% surge last year. While corporate payments remain stable, the fall in non-corporate tax and surge in refunds point to weaker tax momentum. Policymakers may need to monitor upcoming quarters closely to stay on track with fiscal goals.