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FY26 Tax Growth Lags Budget, FY27 Recovery Seen: CareEdge Report

The central government's tax collections have shown weak growth of just 3.3% in the first eight months of FY26, significantly below the budgeted estimate of 12.5%. Both direct taxes, including corporate and income tax, and indirect taxes like GST have underperformed. However, CareEdge Ratings projects a recovery in FY27, with gross tax revenue expected to grow by 9.6% to Rs 43.5 trillion. The improvement is anticipated from a rebound in both direct and indirect tax collections, aligning better with nominal GDP growth.

Key Points: FY26 Tax Collections Weak, FY27 Recovery Projected

  • FY26 tax growth at 3.3% vs 12.5% budget
  • Corporate tax up 7.8%, income tax up 6.8%
  • GST collections contracted 2.0%
  • FY27 gross tax revenue projected at Rs 43.5 trillion
3 min read

Govt's tax collections remain weak in FY26 so far, likely to improve in FY27: CareEdge Ratings

CareEdge Ratings reports weak FY26 tax growth at 3.3%, below 12.5% target. FY27 forecast shows 9.6% rise to Rs 43.5 trillion.

"Direct tax collections have lagged in the year so far - CareEdge Ratings Report"

New Delhi, January 26

The central government's tax collections have remained weak so far in the ongoing financial year 2025-26, 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.

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.

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, 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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Reader Comments

S
Shreya B
As a small business owner, the GST rationalisation was a relief for us, even if it caused a short-term dip in collections. A simpler, more predictable tax system is better for compliance in the long run. 👍
A
Arjun K
The income tax growth missing the target by such a huge margin (6.8% vs 21.6%) is the real story here. It suggests either job creation/salary growth is slower than projected, or compliance needs a major push. The government needs to address this root cause.
P
Priya S
Every year we hear about shortfalls and then next year's projections are always optimistic. I appreciate the report's honesty on FY26, but I'll believe the FY27 improvement when I see it. Fiscal discipline is key.
M
Michael C
Watching from an investment perspective. The projected improvement in tax buoyancy to 0.95 is a positive signal for the economy's underlying health. If nominal GDP grows as expected, FY27 could see a solid recovery.
K
Kavya N
Hope the expected recovery means no new surprise taxes for the common man next year! The focus should be on widening the tax base, not increasing the burden on existing taxpayers. 🤞

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