India revamps its tax regime in 2025, new Income Tax Act to take effect from April 1
New Delhi: India overhauled its tax regime in 2025 with sharp cuts in Goods and Services Tax (GST) rates and a higher income tax exemption limit, and attention has now shifted to customs duty rationalisation and procedural simplification in the coming Budget.
From April 1 next year, the new Income Tax Act, 2025, will replace the six-decade-old Income Tax Act, 1961. In addition, two new laws—one levying additional excise duty on cigarettes and another imposing a cess on pan masala over and above GST—will be implemented on dates to be notified by the government.
The tax reforms introduced in 2025 were aimed at stimulating demand amid a challenging global economic environment marked by tariff uncertainties. The focus was on boosting domestic consumption to support growth.
A key highlight was the reduction of GST rates on around 375 goods and services effective September 22, easing the tax burden on commonly used items and addressing inverted duty structures. The government also compressed the four-tier GST slab structure of 5, 12, 18 and 28 per cent into two principal rates of 5
and 18 per cent, retaining a 40 per cent levy only for sin goods. The move marked a major step towards simplifying the indirect tax regime and reducing litigation.
On the revenue front, GST collections hit a record Rs 2.37 lakh crore in April and averaged about Rs 1.9 lakh crore during the current fiscal year. However, the rate cuts have weighed on growth in collections. GST receipts fell to a year-low of Rs 1.70 lakh crore in November, rising just 0.7 per cent year-on-year, as the full impact of the September rate cut came through.
On direct taxes, the government raised the income tax exemption limit to boost consumption, particularly among urban households, while encouraging voluntary compliance under the simplified regime. Under the 2025 Budget, no income tax is payable on annual income up to Rs 12 lakh under the new regime, which offers lower rates without exemptions. Slabs range from 5 per cent for income between Rs 4–8 lakh to 30 per cent for income above Rs 24 lakh.
The tax cuts, however, slowed non-corporate income tax collections. Net non-corporate tax grew 6.37 per cent to Rs 8.47 lakh crore between April 1 and December 17, compared with a 10.54 per cent rise in net corporate tax collections to Rs 8.17 lakh crore. Refund issuances also declined 14 per cent year-on-year to over Rs 2.97 lakh crore as the tax department subjected high-value claims to additional scrutiny.
With GST and income tax reforms largely in place, the government has shifted focus to customs. Finance Minister Nirmala Sitharaman said simplification and duty rationalisation are priorities, as tariff slabs were cut to eight, with experts calling for digitalisation and faster clearances.
