Centre’s Tax Revenues Beat Expectations; Fiscal Deficit At 25-Year Low

Despite income tax reliefs announced in the Union Budget, the Centre’s tax collections in the first two months of fiscal year 2026 have remained strong, easing concerns over a potential revenue dip.

According to data released by the Controller General of Accounts, gross tax revenue rose by a solid 12% in April–May 2025 compared to the same period last year. This performance comes despite muted growth in direct tax collections, which increased just 5%. The heavy lifting was done by indirect taxes, which surged 22%, largely on the back of strong goods and services tax receipts.

The government has projected a 12.5% increase in gross tax revenue for the full year, aiming to collect Rs 42.7 lakh crore in FY26.

On the fiscal side, the government reported a rare surplus in May, as revenue inflows—especially from dividends and taxes—outpaced expenditure.

In May alone, government spending was Rs 2.8 lakh crore, while revenue collections stood at Rs 4.5 lakh crore—showcasing a comfortable cash position early in the fiscal year.

The improvement was helped by higher-than-expected dividend transfers, notably from the Reserve Bank of India.

For the April–May period, the fiscal deficit stood at just 0.8% of the annual target, marking the lowest two-month shortfall since monthly data began to be published in 1997.

In absolute terms, the Centre’s fiscal deficit for April–May 2025 came in at Rs 13,163 crore, significantly lower than the Rs 50,615 crore gap recorded during the same period in FY25, when the deficit accounted for 3.1% of the full-year target.

“Following the receipt of the higher-than-budgeted dividend from the RBI, the government reported a sizeable fiscal surplus in May 2025, which is sure to be a fleeting phenomenon, as expenditure picks up in the later months. This pulled down the fiscal deficit to just 0.8% of the FY2026 BE for the months of April-May 2025," said Aditi Nayar, chief economist, ICRA.

She underlined that given the buffers on the receipts side, the government could push up capex by Rs 0.8 trillion in FY26, boosting the headline figure to nearly Rs 12 trillion, as compared to the budgeted estimate of Rs 11.2 trillion. This will take the yearly growth to a healthy 14.2%.