India implemented a major tax overhaul in 2025, introducing sharp Goods and Services Tax (GST) rate cuts and raising the income tax exemption limit. With these reforms largely in place, the government is now turning attention to rationalising customs duties and simplifying procedures in the upcoming Budget.
Starting April 1, 2026, the new Income Tax Act, 2025 will replace the six-decade-old 1961 Act. In addition, two new laws—levying extra excise on cigarettes and a cess on pan masala—will be implemented on dates notified by the government. These measures aim to stimulate domestic demand amid global economic uncertainties, boost consumption, and support growth.
GST Reforms
On September 22, 2025, GST rates on nearly 375 goods and services were cut, reducing the tax burden on commonly used items and addressing inverted duty structures. The four-tier structure of 5%, 12%, 18%, and 28% was simplified into two main slabs: 5% and 18%, while a 40% rate was retained only for sin goods.
The reform has made the indirect tax regime simpler and more predictable. Collections reached a record ₹2.37 lakh crore in April and averaged ₹1.9 lakh crore during the fiscal year. However, GST revenue slowed post-rate cuts, with November collections at a year-low of ₹1.70 lakh crore, growing just 0.7% YoY.
Income Tax Relief
The income tax exemption limit was raised, benefiting middle-income earners and boosting disposable income. Under the new regime, incomes up to ₹12 lakh are tax-free, with rates of 5% for ₹4–8 lakh, 10% for ₹8–12 lakh, and 15% for ₹12–16 lakh. Higher brackets are taxed at 20%, 25%, and 30%.
While corporate tax collections grew 10.54% to ₹8.17 lakh crore, non-corporate collections rose only 6.37% to ₹8.47 lakh crore. High-value refund issuances fell 14% to ₹2.97 lakh crore, reflecting stricter assessments by the Income Tax Department.
Customs Duty Rationalisation Ahead
With GST and income tax reforms largely implemented, the government’s next focus is customs duty simplification. Finance Minister Nirmala Sitharaman has highlighted the need for transparent, predictable customs processes, lower rates on remaining high-duty items, and digitisation of procedures.
In the 2025-26 Budget, the government eliminated seven additional customs tariff rates on industrial goods, reducing total slabs to eight. Experts recommend further end-to-end digitalisation, uniform documentation, risk-based clearances, and possibly a one-time amnesty scheme for legacy customs disputes to ease litigation and improve trade facilitation.
Outlook
As India transitions to the next phase of tax reforms, simplification, predictability, and ease of doing business remain key priorities. The government aims to continue driving compliance, boosting domestic consumption, and enhancing investor confidence while modernising both indirect and direct tax systems.
