Introduction
Tax refunds under direct taxes and GST have grown steadily in the April–June quarter of FY 2025–26. While this indicates faster processing by the Income Tax Department and GSTN, it has also impacted India’s net tax collection figures. Here’s what it means for taxpayers, consultants, and small businesses.
Direct Tax Refunds: Key Numbers and Trends
According to the CBDT press release dated 7 July 2025, direct tax refunds shot up by over 21% in Q1 FY26, compared to the same period last year.
Breakdown:
- Total direct tax collection (gross): ₹4.26 lakh crore
- Refunds issued: ₹1.27 lakh crore
- Net direct tax collection: ₹2.99 lakh crore (up 6.4% YoY)
CBDT has credited this to speedy processing of ITRs under Section 143(1), aided by automation and the newer CPC 2.0 infrastructure.
Expert View: Faster refunds are a positive sign for taxpayers, especially salaried individuals and MSMEs. But for the government, it temporarily deflates the net revenue number.
GST Refunds: High Volume, Faster Disbursal
As per Ministry of Finance reports (June 2025), GST refunds have also seen an uptick, particularly in export-oriented sectors like textiles, pharma, and IT services.
Highlights:
- Total GST collected (gross): ₹4.04 lakh crore (Apr–Jun FY26)
- Refunds issued: Estimated ₹75,000 crore
- Net GST revenue: ₹3.29 lakh crore
Contributing Factors:
- Timely processing under Rule 89 of CGST Rules
- Clearer refund norms post CBIC Circular No. 197/09/2023-GST
- Exporter push via RODTEP and IGST refund automation
Why Refunds Impact Net Collections
Refunds reduce the net revenue available to the exchequer in the short term. But they also indicate:
- Improved compliance and transparency
- Faster dispute resolution under Faceless Assessment and GST grievance redressal
- Confidence in Digital India’s backend systems
The government’s gross tax collection may look healthy, but net figures dip if refund outgoes are high early in the year.
Legal Provisions Governing Refunds
| Tax Type | Legal Reference | Refund Time Limit |
|---|---|---|
| Direct Tax | Sec. 143(1), 237–241 of Income Tax Act | NA (processed after ITR verification) |
| GST | Sec. 54 of CGST Act + Rule 89, Rule 96 | Within 2 years of relevant date |
Refund claims can be withheld or delayed under certain conditions—like outstanding demand or mismatch in filings.
Practical Tips for Faster Refunds
- File returns early and verify ITR within 30 days
- Ensure no TDS mismatch with AIS/26AS
- For GST, match GSTR-1 and GSTR-3B data
- Attach bank certificates and shipping bills for export refunds
- Use DSC or Aadhaar OTP for authentication to avoid delays
Pro Tip: If refund delays exceed 3–6 months, file a grievance on the Income Tax Portal or GSTN Helpdesk with acknowledgment details.
What’s Next? FY26 Outlook
The government may see a catch-up in net tax collections in the second half of FY26, as refund volumes stabilise post-peak filing season. The positive takeaway?
- Taxpayers are complying better and sooner
- Systems are processing faster
- Refunds are no longer a year-long wait
Summary
Tax refunds under direct taxes and GST rose sharply in April–June FY26, with over ₹2 lakh crore disbursed. This impacted net collection growth but reflects faster processing and improved compliance.
FAQs
Q1. Are GST refunds taxable?
No. Refunds are reclaims of tax already paid. They are not treated as income.
Q2. Can I track my direct tax refund online?
Yes. Use the TIN NSDL site or Income Tax Portal under ‘My Account’.
Q3. What if my refund is less than expected?
Check Form 26AS and ITR computation sheet. Mismatch in TDS or deductions often causes short refunds.