Tax defaults in India surge 5.7 times to Rs 20 lakh crore in 3 years with legacy defaults rising nearly 8 times

Even the tax disputes have surged 52% in last three years to touch Rs 15.7 lakh crore in FY25.

• Tax defaults in India surged 470% in three years, led by non-corporate category
• Unpaid tax demands reached Rs 20 lakh crore in FY25, up 783% from FY22
• Legacy tax demands and disputes for income over 10 years rose sharply

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Tax defaults in India have surged massively by 470% in the last three years led by defaults in the non-corporate category that includes individuals, HUFs and trusts, data analyzed by Moneycontrol showed. As of FY25, Rs 20 lakh crore worth of tax demands remained unpaid compared to Rs 25,396 crore in FY22,  a rise of 783%.

This data captures tax demands in cases where the taxpayers either don’t have any assets that the department can attach to discharge the tax dues, or the taxpayers are absconding and untraceable.

The tax demands raised but not realized in the corporate tax category increased by 263% to Rs 7.3 lakh crore in the three years ending FY25.

A close look at data suggests a massive increase in legacy demands. The tax demands sent to individuals pertaining to income older than 10 years have surged 15,144% to Rs 1.5 lakh crore. And total demands older than 10 years that are neither realized nor disputed has also increased by 3048%. Even tax demands older than 5 years but less than 10 have seen a 4,000% increase.

“The tax demands being received by the individuals and trusts have seen a major surge in the last few years as the tax department started to use technology tools to capture transactions that have not been disclosed in tax returns. Some of the individuals have received demands for income earned many years ago,” said a tax lawyer.

Unpaid corporate tax largely due to IBC cases

In the case of corporation tax unpaid, the surge is on account of companies going through proceedings under the Insolvency and Bankruptcy Code (IBC) where moratorium applies until resolution. And even post resolution, tax dues don’t feature in the top priority list in the watermark mechanism to distribute proceeds, tax experts add.

The development comes at a time when the Income Tax department has initiated a massive crackdown against wealthy individuals who did not disclose foreign assets in their filings. Many such individuals have been receiving notices under the Nudge initiative of the tax department.

Market participants expect this trend to continue especially as the tax department tweaked the income tax forms in July 2025 with the updated forms seeking finer information from the taxpayers including details of dividends, buybacks, and House Rent Allowance (HRA).

“This surge is due to a slew of steep tax notices that the government has been sending to wealthy individuals in relation to various income and assets that have been unearthed due to technology tools,” said Amit Singhania, founder, Areete Law Offices.

Even the tax disputes have surged 52% in last three years to touch Rs 15.7 lakh crore in FY25. In total, tax demands worth over Rs 35 lakh crore remained unpaid, Budget 2026 documents showed. The government discloses in budget documents the tax demands raised not realized which includes two categories: cases under litigation and cases not under litigation.

In the disputes category also, legacy notices have seen sharp rise with disputes pertaining to income more than 10 years ago went up 116% with tax disputes in corporate category surging 374%, data showed.