As the gross tax revenue is projected to fall short of the budget target in the current financial year, the government has intensified efforts to reduce the shortfall.
The Central Board of Direct Taxes has asked field formations to take additional steps to recover tax demands, especially where the amounts involved are larger, sources said.
The Union government would need its gross tax revenue to grow at 22.3% during the remaining five months (November to March) to meet the Budget Estimate of Rs 42.7 lakh crore for the year as a whole.
Govt officials on tax shortfall
A senior government official affirmed that there will be a shortfall in tax revenue collection without giving an exact number. “It’s not at all possible to meet the Budget Estimate after giving big tax benefits (referring to Goods and Services Tax (GST) rate rationalisation and income tax exemption up to Rs 12 lakh),” the official said, adding that the government has been taking steps to narrow down the shortfall.
The government needs a growth rate of 14% to meet corporate tax target of Rs 10.82 lakh crore, 32.5% growth to meet income tax target of Rs 14.38 lakh crore and a growth rate of 18% to meet Rs 10.10 lakh crore Central GST target.
Mukul Bagla, Chair Direct Tax Committee, PHD Chamber of Commerce and Industry said that the government may also issue notices to all taxpayers who have less tax this as against tax paid in last year.
“We have already started to receive notices for shortfall in tax payments/tax deducted at source. It (the government) may also hold large income tax refunds till 31st March, 2026,” Bagla said.
What did Ved Jain say?
Former president of the Institute of Chartered Accountants of India Ved Jain said that there is a lot of pressure on the tax department to recover arrears. “Recovery of outstanding demands is one area which was not being actively pursued in recent years. Delay in refunds could be one of the ways to balance the Budget exercise,” Jain said. As per direct tax collection data released recently, the refunds declined by 13.52% to Rs 2.97 lakh crore as on December 17.
Sandeep Sehgal, Partner-Tax at AKM Global, stated that the government is likely to see a mild-to-moderate shortfall mainly on the direct tax side, though stronger corporate profits from recent GDP growth could partially offset it.
“The biggest gaps are expected in personal income tax, due to higher rebate claims and slower growth in salaried taxpayers, and Securities Transaction Tax (STT), which has been affected by both weak trading volumes and the STT rate cuts,” Sehgal said.
To reduce the shortfall, Sehgal said the government is strengthening compliance by using data analytics and increasing follow-ups on advance tax payments. “A significant push is coming through stricter enforcement of Schedule FA (Foreign Assets) disclosures in the income-tax return, with targeted nudges to taxpayers who have foreign accounts, securities, or structures but have not fully reported them,” Sehgal said.
Given the steep asking rate of 22.3% during November-March FY2026 to meet the Budget estimate, ICRA Chief Economist Aditi Nayar expressed apprehension that the gross tax revenues will undershoot the Budget targeted by Rs 1.2 to 1.5 lakh crore.
“Based on the FY2026 BE and the provisional seven months trends, the GoI’s gross tax revenues needs to expand by over ~22% YoY during November-March FY2026. This requires most tax heads to grow at a much faster pace than they did in seven months, except for union excise duty, which entails a lower growth in November-March vs. seven Months,” Nayar said.