India’s mop-up of direct taxes signals its economic strength

Personal income tax receipts have surged at a compounded annual rate of 22.8% to ₹12.57 trillion in 2024-25 from ₹8.33 trillion in 2022-23. This was driven by higher compliance, enhanced use of technology and more sophisticated data-collection mechanisms. Despite cuts in tax rates and substantial refunds, corporate-tax receipts have also shown steady growth, rising a compounded annual 9% to ₹9.8 trillion in 2024-25 from two years ago. As a result, direct tax collections as a proportion of India’s nominal GDP have climbed to 6.8% from 5.5% during this period.

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Overall direct tax collections have shown a robust growth momentum. Gross direct tax revenue in 2024-25 has surged 16.15% from the previous year to ₹25.87 trillion, significantly outpacing India’s nominal GDP growth. However, a sharp increase in tax refunds, which soared by 32.5% to ₹4.6 trillion, has tempered net collections—they are up 13.13% at ₹21.26 trillion in 2024-25.

Corporate tax collections deserve a closer look. Despite talk of sluggish profit growth, they paint a strong picture. Gross corporate tax receipts have grown by 12.92% to ₹12.40 trillion in 2024-25 (as of 16 March) from ₹10.98 trillion in 2023-24. Net collections, after accounting for ₹2.71 trillion in refunds, stand at ₹9.69 trillion, up 7.11%. They now make up almost 21.9% of gross receipts. Overall, corporate tax revenues are on track to meet the revised estimate of ₹9.8 trillion.

India’s tax resilience is reinforced by corporate earnings data. While concerns over lacklustre profit growth have surfaced, actual numbers belie those worries. An analysis of 4,302 listed companies for the third quarter of 2024-25 from the Moneycontrol earnings database shows revenue growth of 6.9% and net profit growth of about 12%. This aligns with the 13%-odd rise in gross corporate tax collections, signalling sustained business momentum.

Non-corporate income tax collections are also showing strong growth, with gross collections rising 18.24% to ₹12.90 trillion in 2024-25 from a year ago. Refunds have increased to ₹1.89 trillion from ₹1.54 trillion, thus staying stable at around 14% of gross collections. As of 16 March 2025, net collections, including securities transaction tax, stood at ₹11.54 trillion, bringing the revised budget estimate of ₹12.57 trillion within reach.

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The momentum in tax collections is expected to continue this fiscal year. Budget estimates project corporate tax revenue to rise 10.4% to ₹10.82 trillion in 2025-26, while personal income tax collections are seen rising 14.4% to ₹14.38 trillion. With corporate tax refunds expected to decline, achieving these targets appears feasible.

Overall, the gross personal direct tax mop-up is projected to grow 20% in 2025-26 and net collections by about 15%, even if refunds remain at about 14.5% of gross receipts. These numbers are despite tax reductions worth ₹1.1 trillion in the budget for 2025-26, reflecting India’s strong tax buoyancy driven by increased technology use and diversified income sources.

A key driver of net tax growth has been the clearance of accumulated refunds from previous years. Refund payouts for 2023-24 and 2024-25 have totalled ₹8.07 trillion, rising from 15.6% of gross collections to 17.8%. With refund outflows stabilizing, net direct tax collections are expected to see stronger growth, further supporting the fiscal projections for 2025-26.

Sectoral trends reveal a divergence in corporate earnings. Oil companies, for instance, have reported lower profits compared to last year’s windfall, when high retail prices and low procurement costs boosted earnings.

With the government now reducing retail fuel prices and input costs having risen, margins in this sector have got compressed. However, overall corporate tax collections continue to show resilience, supported by growth in other sectors.

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In conclusion, India’s direct tax performance underscores the strength of the economy. A combination of higher compliance, digital tax administration and broad-based economic activity has fortified tax revenues.

With robust projections for 2025-26 and the ongoing economic expansion expected to carry on, direct-tax buoyancy continues to be a crucial pillar of support for India’s fiscal plans.

The authors are, respectively, chairman and research fellow, 3one4 Capital.