tax system
India has made major changes in its tax system in 2025. This includes a sharp cut in GST rates and increasing the income tax exemption limit. Now in the coming budget, the focus will be on making custom duty easy and logical. From April 1 next year, a new and simpler Income Tax Act, 2025 will come into force, which will replace the more than 60 years old Income Tax Act, 1961. Apart from this, two new laws will also be brought. One to impose additional excise duty on cigarettes and the other to impose separate cess on Pan Masala apart from GST. The government will decide the date of their implementation. The purpose of the tax reforms done in 2025 was to increase demand in the weak global economic environment. When there was uncertainty regarding tariffs, India emphasized on increasing domestic demand and consumption.
Big change in GST
GST rates were reduced on about 375 goods and services from September 22. This made everyday items cheaper and an attempt was made to remove the old problems related to the inverted duty structure. The government reduced the four GST slabs of 5%, 12%, 18% and 28% to two main slabs of 5% and 18%. Only sin goods like liquor and tobacco were taxed at 40%. This made the indirect tax system more simple and clean. The purpose of this change was to make GST easier, stable and less controversial.
condition of collection
GST collection in April was a record Rs 2.37 lakh crore, while the average in the current financial year was Rs 1.9 lakh crore. However, after the rate cut, the pace of revenue has slowed down a bit. GST collection in November came down to Rs 1.70 lakh crore, which was the lowest level of the year. On annual basis it increased by only 0.7%. This was the first month when the full effect of the September rate cut was visible.
Income tax relief
The government gave relief to the middle class by increasing the income tax exemption limit. Due to this, more money was saved in the hands of people and there was hope of increase in consumption. It was announced in the budget of 2025 that in the new tax system, there will be no tax on annual income up to Rs 12 lakh. There are low tax rates in this system, but there is no benefit of exemptions and deductions.
The new rates are like this
- Rs 4 to 8 lakh: 5%
- Rs 8 to 12 lakh: 10%
- Rs 12 to 16 lakh: 15%
- Rs 16 to 20 lakh: 20%
- Rs 20 to 24 lakh: 25%
- Above Rs 24 lakh: 30%
However, due to tax cuts, the pace of non-corporate tax collection remained slow between April and December. During this period, it increased by 6.37% to Rs 8.47 lakh crore, while corporate tax increased by 10.54% to Rs 8.17 lakh crore.
Refunds and the way forward
Income tax refunds were also slow this year because the department investigated larger refund cases more. Refunds declined by 14% compared to last year to about Rs 2.97 lakh crore. Now that major reforms have been made in GST and Income Tax, the government’s focus is on simplifying the custom duty. Finance Minister Nirmala Sitharaman has said that simplifying customs is the next big agenda of the government. Like income tax, it is necessary to have transparency, faceless system and rationalization of rates in customs also. The government has reduced custom duty in the last two years, but further reduction will be done where the rates are still high. In the budget 2025-26, it is proposed to remove 7 more custom tariffs on industrial goods, which will reduce the total slabs to 8.
Experts’ opinion
Mahesh Jaisingh of Deloitte India says that the next phase of customs reforms is necessary due to changing trade patterns, rising costs and procedural bottlenecks. According to Rahul Shekhar of Nangia Global, completely digital process in customs, uniform documents, clear classification and fast clearance will increase the confidence of business and investors. He also suggested introducing a one-time waiver scheme for old custom disputes.