India's Tax Refund Rush

Good Morning. India's direct tax collections in the first quarter of this financial year saw a slight dip of 1.34%. On the other hand, tax refunds went up significantly by 38% and were worth Rs 1.01 trillion. We spoke to tax experts about where all these refunds went and what it means for the government's overall tax collections.

In other news, the Enforcement Directorate (ED) is going after e-commerce major Myntra over alleged foreign direct investment (FDI) violations. Meanwhile, India’s central bank, the Reserve Bank of India (RBI), says India's economy is holding strong amid global turmoil.

DECODE THE NEWS

India’s On Course To Hit Annual Targets Even With A Dip In Net Tax Collections

What?

The financial year of 2025-26, which began with uncertainties like tariff tantrums and slowdown in core sector growth, also saw its net direct tax collections fall by 1.34% in its first quarter.

The major drag on the collections was a sharp rise in refunds, which was worth Rs 1.01 trillion. A lion’s share of the refunds, or 80%, went to corporates.

On the other hand, collections of non-corporate tax slipped after the government’s income tax regime change and exemption limit.

But the biggest anomaly was this — a steep 81% drop in the mysterious “Other Taxes” category. The composition of this segment remains undefined in public disclosures.

While gross collections from corporate and securities transaction tax increased, non-corporate taxes (NCT) that include income tax have gone down by 1.2%.

Why?

Experts attribute the rise in refunds to self-assessment and advance tax payments by individuals.

“Excess payment of advance tax is a common reason for refunds,” said Dr Suresh Surana, a chartered accountant and added, “Corporates often adopt a conservative approach while estimating their tax liability, resulting in a higher upfront tax payment to safeguard against potential underestimation.”

In the case of NCT, the regime change by the government meant that there will be no tax on income up to Rs 12 lakhs per annum, under the New Tax Regime.

"TDS (tax deducted at source) is being collected in accordance with the new fiscal year tax legislation, which increased the basic exemption limit for everyone from Rs 3 lakh to Rs 4 lakh. This will have a direct impact on the salaried class, causing TDS to be lower than last year this time. An increasing number of people are opting for the New Tax Regime, which decreases the tax burden even further by eliminating deductions. This would further cut quarterly tax payments to the ITD,” said Suneel Dasari, founder and CEO of EZTax.in.

What is the ‘Other Taxes’ category? And will the higher refunds affect the government’s overall tax revenue?

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CORE NUMBER

Rs 1,654 crore

That’s how much FDI that the ED alleges Myntra illegally routed while violating India’s multi-brand retail rules, according to a complaint filed under the Foreign Exchange Management Act (FEMA).

🧾 What the ED says:

• Myntra posed as a wholesale entity but allegedly sold 100% of its goods to a related retail company, Vector E-Commerce.

• This structure, the ED claims, bypassed FDI rules limiting intra-group sales to 25%.

🛍️ What Myntra says:

• It hasn’t received the complaint yet.

• The company maintains it complies with all regulations and supports India’s digital commerce ecosystem.

FROM THE PERIPHERY

RBI Flags Demand Stability. India’s economy remains resilient despite global volatility, the RBI said in its latest monthly bulletin. Growth is being supported by strong services momentum, improving farm output prospects, and modest industrial expansion.

Flashpoint: Retail inflation fell to 2.10% in June — a six-year low — giving RBI room to cut rates by 50 basis points and ease the cash reserve ratio last month to boost liquidity.

Implications: While recent data shows stable demand, the central bank flagged cautious investor sentiment in early July amid mixed corporate earnings and uncertainty around an India–U.S. trade deal.

PayPal Bets On UPI. Payments firm PayPal will launch a new global platform to enable cross-border payments between consumers and businesses, as reported by Reuters. Partners include the National Payments Corporation of India (NPCI), which operates the Unified Payments Interface (UPI), Brazil’s Mercado Pago, China’s Tenpay Global, and Venmo.

Backdrop: UPI currently accounts for over 85% of India’s digital retail transactions. Its integration into PayPal World could allow Indian users to make and receive cross-border payments using UPI for the first time.

Implications: Freelancers, small exporters and global shoppers could benefit from cheaper, faster transactions. The platform is expected to go live later this year.

Eating Out? No Thanks! Sapphire Foods India, which runs KFC and Pizza Hut, reported a Rs 1.8 crore loss for the April–June quarter, compared to an Rs 8.52 crore profit a year ago. Westlife Foodworld, a McDonald’s franchisee, also made a much lower profit this year at Rs 1.23 crore compared to Rs 3.25 crore last year.

By the Numbers: While opening more stores increased the company’s revenue, it also added to its costs — Sapphire’s expenses rose by 10.8%, outpacing the 8% rise in revenue.

The Scoop: Fast food companies aren’t doing as well; Indian consumers are worried about rising living costs and don’t want to spend money eating outside, according to a Reuters report. Sapphire is trying to lure consumers with deals – nine-piece fried chicken for Rs 299; free Pepsi with select pizzas at Pizza Hut. But, that’s not had an impact on its same-store sales growth — KFC’s growth was flat while Pizza Hut’s dropped by 8%. 

Hindi-Chini Bhai Bhai, Once More. Starting July 24, India will once again begin granting tourist visas to Chinese citizens. The two countries suspended diplomatic relations during the peak of the COVID pandemic. That was also when a deadly clash at India’s Northeastern border took the lives of Indian soldiers. 

Origin: Chinese President Xi Jinping and Modi met in October during the BRICS summit, when they agreed to mend ties. Earlier this month, Indian foreign minister S Jaishankar visited Beijing, his first trip to China in five years. 

The Twist: But, all may not be well. In April 2025, China restricted exports of rare earth metals and magnets, which had a domino effect on several Indian industries. China has since also cut down on fertilizer exports, a move that’s massively impacted Indian agriculture too. 

THE SIGNAL DAILY

Tesla Is Finally in India. But, Who’s Buying?

Tesla has been flirting with the Indian market for years. In 2016, after Elon Musk tweeted about it, some even paid the 1000 USD fee and pre-booked Tesla’s Model 3. But, they never got their car. 

Earlier this month, on July 15th, Tesla finally launched in India. The company will have three showrooms, one in Mumbai, one in Delhi and one in Gurugram. It will sell its Model Y in India, priced at 60 lakh rupees. 

But, the Indian EV market has changed drastically since 2016. There are so many local and foreign players in town now – BYD, Mercedes, Audi, Tata and Mahindra, to name a few. Tesla’s sales have also gone down, globally. 

Given that, will the company succeed or will it tank in India? 

In the latest episode of The Signal Daily, we’ll hear from consumers and auto experts. Why would an Indian consumer choose to go for a Tesla right now? 

The Core produces The Signal Daily. Follow us wherever you get your favourite podcasts. To check out the rest of our work, go to www.thecore.in

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