India's FY26 tax collections may miss target by ₹3 lakh crore; revenue may recover in FY27: CareEdge

India’s gross tax revenue in FY26 is projected to fall short of the budgeted target by ₹3 lakh crore, rising just 3.3% year-on-year in the first eight months, according to CareEdge Ratings.

Direct taxes, including corporate and income taxes, underperformed against annual targets, though both showed modest recovery in recent months. GST collections contracted 2% following September’s rate rationalisation, while customs duties fell.

Union excise duties posted healthy growth, aided by ongoing levies on select goods.

Non-tax revenue has partially offset the shortfall, surging 20.9% during April–November FY26, driven by higher-than-expected dividend transfers from the Reserve Bank of India (RBI).

Disinvestment proceeds and other non-debt capital receipts remained weak at Rs 49 billion versus a budgeted Rs 470 billion, with key planned sales, including stakes in IDBI and LIC, likely to be deferred to FY27.

Expenditure trends show revenue spending growing modestly at 1.8% in 8M FY26, while capital expenditure surged 28.2%, achieving 58.7% of the budgeted target.

CareEdge projects FY27 capex at ₹12.3 lakh crore, a 10% increase, while revenue expenditure is expected to be rationalised. The capex-to-revex ratio is likely to remain at 0.3, highlighting a continued focus on investment-led growth.

The fiscal deficit for FY26 is estimated to slightly overshoot the budgeted 4.4% of GDP, staying at 4.4%, while the FY27 deficit is projected at 4.2–4.3% of GDP. Gross borrowing in FY27 is expected in the ₹16–17 lakh crore range to manage large redemptions, with net borrowing around ₹11.5–12 lakh crore.

Survey insights from CareEdge, covering 200 respondents across financial services, manufacturing, IT, trade, telecommunications, and real estate sectors, reflected optimism for India’s growth prospects.

Over half of respondents expect real GDP growth above 7% in FY27.

Key priorities for the upcoming budget include support for MSMEs and export-oriented sectors, infrastructure spending, and research and development, while geopolitical risks, employment generation, and manufacturing competitiveness were cited as major challenges.

The report stresses a mixed fiscal picture: while FY26 tax collections underperformed and disinvestment continues to lag, strong non-tax revenue and planned capital expenditure are expected to support fiscal consolidation and investment-led growth in FY27.