India has implemented major reforms to its tax system in 2025. GST rates have been reduced, income tax exemptions have been increased to 1.2 million rupees, and a new income tax law will come into effect on April 1. The focus now is on customs duty reform.
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New Income Tax: India has implemented major changes to its tax system in 2025. This includes a sharp reduction in GST rates and an increase in the income tax exemption limit. The upcoming budget will focus on simplifying and rationalizing customs duties. The new and simplified Income Tax Act, 2025, will come into effect on April 1st next year, replacing the more than 60-year-old Income Tax Act, 1961. Two new laws will also be introduced: one to impose additional excise duty on cigarettes and the other to impose a separate cess on pan masala in addition to GST. The government will decide the dates for their implementation. The tax reforms implemented in 2025 were aimed at boosting demand in a weak global economic environment. While uncertainty persisted regarding tariffs, India focused on increasing domestic demand and consumption.
Major GST Changes
Effective September 22nd, GST rates were reduced on approximately 375 goods and services. This made everyday items cheaper and addressed long-standing problems associated with 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 alcohol and tobacco were taxed at 40%. This simplified and streamlined the indirect tax system. The purpose of this change was to make GST simpler, stable, and less prone to disputes.
Collection Status
GST collections in April reached a record ₹2.37 lakh crore, compared to an average of ₹1.9 lakh crore in the current fiscal year. However, revenue growth has slowed slightly following the rate cuts. In November, GST collections fell to ₹1.70 lakh crore, the lowest level of the year. On a year-on-year basis, they grew by only 0.7%. This was the first month where the full impact of the September rate cut was felt.
Income Tax Relief
The government provided relief to the middle class by increasing the income tax exemption limit. This left more money in the hands of individuals and raised hopes of increased consumption. Budget 2025 announced that the new tax system would exempt income up to ₹12 lakh annually. This system has lower tax rates but does not offer the benefits of exemptions and deductions.
The new rates are as follows:
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 24 lakh: 30%
However, due to tax cuts, non-corporate tax collections slowed 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 as the department increasingly scrutinized large refund cases. Refunds fell 14% compared to last year to approximately ₹2.97 lakh crore. Now that major reforms have been implemented in GST and income tax, the government is focusing on simplifying customs duties. Finance Minister Nirmala Sitharaman has stated that simplifying customs is the government’s next major agenda. Like income tax, transparency, a faceless system, and rationalization of rates are essential in customs. The government has reduced customs duties in the last two years, but further reductions will be made in areas where rates are still high. The 2025-26 budget proposes removing seven more customs tariffs on industrial goods, reducing the total number of slabs to eight.
Expert Opinion
Mahesh Jaisingh of Deloitte India says that the next phase of customs reform is necessary due to changing trade patterns, rising costs, and procedural bottlenecks. Meanwhile, Rahul Shekhar of Nangia Global said that fully digital customs processes, consistent documentation, clear classification, and faster clearance would boost business and investor confidence. He also suggested a one-time amnesty scheme for old customs disputes.
