Tax Refunds under direct taxes, GST see steady rise in April-June quarter, net collection impacted

Refunds in both direct taxes and GST registered a steady rise during the first quarter of the last three fiscals. Though this trend has impacted net collection, especially when gross tax collection is also down, experts have varied views. 

Data from Income Tax Department showed gross tax collection between April 1 and July 10 was over ₹6.65 lakh crore as against ₹6.44 lakh crore showing a growth of just over 3 per cent. However, during this period, refunds rose to around ₹1.02 lakh crore as compared to around ₹74000 crore showing a jump of over 38 per cent. This rise has been recorded a day after Finance Minister Nirmala Sitharaman emphasised the need for speedy refund disbursement. 

Explaining the rise in high refunds, Vivek Jalan, Partner with Tax Connect said this might be seen in two parts — corporate and personal refunds. In corporate tax, refunds could be mainly generated due to lower profits and higher TDS deduction. “While some may argue that lower profits were due to higher depreciation on new capital investments, yet in my view a better explanation would be lower profits were mainly due to unexpectedly low top line performance. This is in line with the muted corporate results seen for FY 24-25. This seems a not so good news for the economy and hence in the Budget 2025, the tremendous relaxation in personal Income tax slabs to push the consumption and consequent revenues of businesses,” he said.

 Further, he added that on the personal tax front, the refunds seem to be generated primarily due to switching regimes while filing the ITRs, the resultant savings and consequent refunds. 

GST 

Meanwhile, gross GST Collection between April and June was over ₹6.22 lakh crore as against ₹5.57 lakh crore during the corresponding period of the last fiscal showing a growth of 11.8 per cent. However, refunds during this period rose nearly 20 per cent, reaching around ₹80000 crore as against ₹67000 crore.  

Saurabh Agarwal, Tax Partner at EY India observed a trend where the proportion of refunds relative to gross collections has subtly shifted, from 15.86 per cent in Q1 FY22-23 to a more streamlined 12.82 per cent in Q1 FY25-26. This change is significant. While the sheer scale of refund disbursement continues to be crucial for business liquidity, especially for exporters and MSMEs, this decrease in the percentage of refunds also indicates something very important, he said. 

“The government has taken crucial steps to resolve part of the long-standing ‘inverted duty’ issues. This means that situations where raw materials were taxed higher than finished goods are being addressed, leading to fewer refund claims on that front,” he said while adding that this trend unequivocally signals a dynamic and maturing tax environment.

 “It fosters greater trust and compliance among taxpayers, by making the system fairer and more predictable. I believe that these ongoing reforms are vital for boosting business confidence and reinforcing India’s strong economic trajectory, Agarwal said. 

Published on July 13, 2025