India Revamps Tax Regime In 2025, New I-T Act To Take Effect From April 1

India overhauled its tax regime in 2025 with sharp cuts in Goods and Services Tax (GST) rates and a higher income tax exemption limit, with the spotlight now turning to customs duty rationalisation and procedural simplification in the coming Budget.

Next year will see the new simplified Income Tax Act, 2025, to come into effect from April 1, replacing the over six-decade-old current Income Tax Act, 1961. Also, two new laws — one to levy additional excise duty on cigarettes and another to levy cess on pan masala over and above GST rates will be implemented on a date decided by the government.

The tax reforms rolled out by the government in 2025 were aimed at stimulating demand amid a challenging global economic environment. With tariff uncertainties casting a shadow over economic decision-making, India’s tax reform measures focused on boosting domestic demand to drive consumption and support growth.

A key highlight was the reduction of GST rates on about 375 goods and services effective September 22, which lowered the tax burden on commonly used items and addressed long-standing concerns over inverted duty structures.

The move to compress the four-tier GST slab structure of 5, 12, 18 and 28 per cent into two principal rates of 5 and 18 per cent, with a 40 per cent levy retained only for sin goods, marked a major step towards rationalisation and simplification of the indirect tax regime. The GST overhaul was designed to make the indirect tax regime simpler and India’s 2025 tax overhaul saw significant GST rate cuts and a higher income tax exemption

On the collections front, GST mop up touched a record high of Rs 2.37 trillion in April, and was averaging Rs 1.9 trillion during the current fiscal year. The sweeping rate cuts have put some pressure on the GST revenues with a slowing growth rate.

India’s Goods and Services Tax (GST) collections slipped to a year-low of Rs 1.70 trillion in November — growing at a meagre 0.7 per cent year-on-year. November was the first month that recorded the full impact of the GST rate cut effective September 22.

On the direct tax front, the government raised the income tax exemption limit, providing relief to middle-income taxpayers and leaving more disposable income in the hands of consumers. The move was seen as a consumption booster, particularly for urban households, while also reinforcing voluntary compliance under the simplified tax regime.

The Budget for 2025 announced that no income tax will be payable on income of Rs 12 lakh a year under the new income tax regime, which offers lower tax rates without the benefit of claiming exemptions and deductions.

The tax rates applicable under this regime are 5 per cent of income between Rs 4-8 lakh, 10 per cent (Rs 8-12 lakh), and 15 per cent (Rs 12-16 lakh). Tax at 20 per cent rate is applicable on income between Rs 16-20 lakh, 25 per cent (Rs 20-24 lakh), and 30 per cent on income above Rs 24 lakh.

 However, the tax cuts slowed down non-corporate income tax collections between April and mid-December. Net non-corporate tax (which includes taxes paid by individuals, HUFs, and firms) grew 6.37 per cent at Rs 8.47 trillion between April 1 and December 17, as against a 10.54 per cent growth in net corporate tax collection at Rs 8.17 trillion.

Refund issuances slowed during the current fiscal year as the Income Tax department did extra analysis of high-value refund claims. Refund issuance dropped 14 per cent compared to last year to over Rs 2.97 trillion, according to recent data.

With major reforms in GST and income tax largely in place, policymakers have now turned their focus to customs duty rationalisation.

Finance Minister Nirmala Sitharaman recently said that simplification of customs would be the next big reform agenda for the government. There is a need to bring the virtues of income tax, like faceless assessment, to the customs side in terms of transparency and entail duty rate-rationalisation.

The government has steadily brought down customs duty over the last two years. But, the few items where the rates continue to be over the optimal level, would have to be brought down as well. “Customs is my next big cleaning-up.

In the 2025-26 Budget, the government proposed eliminating seven additional customs tariff rates on industrial goods, following the removal of seven tariffs in 2023-24. The exercise reduced the total number of tariff slabs to eight.

As India heads to the next phase of tax reforms, simplification, predictability and ease of doing business are expected to remain at the centre of the policy agenda.

Deloitte India Partner & Indirect Tax Leader Mahesh Jaising said, “evolving trade patterns, rising compliance costs, and persistent procedural bottlenecks signal the need for the next phase of Customs reforms.

Nangia Global Partner- Indirect Tax, Rahul Shekar, said emphasis should be on end-to-end digitalisation of customs processes, with uniform documentation, predictable classification practices and faster, risk-based clearances, which would enhance trade facilitation and investor confidence.

The government could consider a one-time amnesty scheme for legacy customs disputes to unlock revenue and ease litigation burden, he added.

Centre May Set 54.5-55% Debt-To-GDP Goal For Fy27 In Union Budget

The central government is likely to target a reduction in the debt-to-GDP (gross domestic product) ratio to 54.5-55 per cent for FY27 in the forthcoming Union Budget, down from the 56.1 per cent budgeted for FY26, an official said. “The government is likely to follow a moderate consolidation path for FY27.

According to data presented by the Finance Ministry in Rajya Sabha on Dec 23, debt as a ratio of GSDP is estimated to be 35% or more in the current fiscal in at least 11 states.

Finance Minister Nirmala Sitharaman on Dec 24 said that reducing India’s debt-to-GDP ratio will be the government’s core focus in the next financial year 2026–27, stressing the need for sustained fiscal discipline to support long-term growth.

Speaking at a media interaction in the national capital, the Finance Minister noted that the country’s debt-to-GDP ratio had crossed 60 per cent during the Covid-19 period but has since begun to decline.

“It is already coming down, but we need to reduce it further, and this will be a core focus in the next financial year,” Sitharaman said, adding that Reserve Bank of India studies and documents indicate worrying debt levels in some states.

She cautioned that unless debt is managed within the Fiscal Responsibility and Budget Management (FRBM) framework and high-interest borrowings are reduced, states risk borrowing merely to service existing loans rather than for development. Such practices, she said, could threaten the long-term momentum towards Viksit Bharat by 2047.

The Finance Minister said the Centre has prioritised transparency in budgeting and accountability in fiscal management. She reiterated that while the fiscal deficit remains a key indicator, debt reduction will be the principal focus in the coming year.

Sitharaman also highlighted efforts to deepen the bond market to enable greater flow of funds into the economy.

Referring to India’s global standing, she said the Union government’s fiscal discipline under Prime Minister Narendra Modi’s stable leadership has strengthened India’s position in international economic negotiations.

On financial inclusion, the Finance Minister said expanded access to banking services, credit through schemes such as Mudra, and widespread account ownership have increased the credit footprint of citizens, enabling greater access to formal finance.

Outlining India’s long-term economic aspirations, Sitharaman said the country aims to contribute 25 per cent of global trade as part of the Viksit Bharat vision. She underlined the need to revive manufacturing and agriculture, enhance value addition, and further strengthen the services sector, which now contributes over 60 per cent to GDP.

She also flagged concerns over private sector investment, noting that despite corporate tax cuts in 2019, capacity expansion has remained limited. She said emerging areas such as Global Capability Centres and data centres are generating employment but require energy security, underlining the importance of clean energy initiatives including nuclear power, small modular reactors, pumped storage, hydro, solar and wind energy.

The Finance Minister said India has emerged as a bright spot in the global economy by maintaining steady growth amid geopolitical and economic uncertainty. She credited the resilience of the Indian people for sustaining growth despite challenges such as the Covid-19 pandemic.

Commenting on global trade conditions, Sitharaman said international trade is increasingly neither free nor fair, with tariffs often being weaponized. She said India must negotiate carefully while safeguarding domestic interests and leveraging its growing economic strength.

The FM also urged the states to focus on lowering their debt. “The Centre has set clear goals for transparency in budget-making, ensuring that fiscal management is visible to all and meets the highest standards of accountability,” Sitharaman said at India Economic Conclave organised by a media-house. “As a result, we have been able to bring down the debt-to-GDP ratio since the post-Covid period, when it had crossed 60%. It is now on a declining path,” she added. The Centre’s debt-to-GDP declined to 57.1% in 2024-25, from a high of 61.4% in 2020-21, as per official data. It is estimated to come down to 56.1% in the current fiscal.