India’s 2025 tax landscape is marked by wider income‑tax slabs, movement towards a new Income Tax Act/Direct Tax Code, and a major “GST 2.0” rationalisation of rates and compliance. These changes are framed as simplification plus digitalisation, affecting both direct taxes and GST from FY 2025‑26 onwards.
1. New income‑tax slabs for FY 2025‑26
The government has notified revised slabs for FY 2025‑26 (AY 2026‑27) with a more graduated rate structure and higher thresholds, e.g. up to ₹4 lakh NIL, ₹4–8 lakh at 5%, ₹8–12 lakh at 10%, and progressively up to 30% above ₹24 lakh.
Policy intent is to reduce the burden on middle‑income taxpayers and make the default (new) regime more attractive relative to the older deduction‑heavy framework.
2. Income Tax Act 2025 and Direct Tax Code trajectory
The government has moved towards a new Income Tax Act, 2025 / Direct Tax Code framework, aimed at consolidating and modernising direct tax law and simplifying interpretation of provisions.
Key features include consolidation of deductions, wider use of TDS/TCS, and stronger anti‑avoidance/anti‑evasion measures aligned with global standards.
3. Enhanced rebates and basic exemption relief
Union Budget 2025 announcements include higher basic exemption/relief under the new regime and increased rebates, allowing low‑ and lower‑middle‑income individuals to remain effectively tax‑free up to an expanded threshold.
This measure is positioned as improving disposable income and boosting consumption while maintaining a simpler, slab‑based structure without extensive deductions.
4. Expansion of TDS and TCS coverage
The Direct Tax Code 2025 framework expands the scope of tax deducted at source (TDS) and tax collected at source (TCS) to “most forms of income”, not just salary, interest, or specific contractual payments.
Academically, this is a shift towards “withholding‑centric” administration, designed to increase traceability of incomes, reduce evasion, and smoothen revenue flows to the exchequer.
5. Digital compliance and e‑governance in direct tax
2025 reforms emphasise digital filing, pre‑filled returns, and online utilities under the Income‑tax Bill/Act 2025, reducing paperwork and promoting faceless or tech‑enabled assessment.
This aligns with the broader framework of using data analytics for risk‑based scrutiny and improving voluntary compliance by simplifying taxpayer interaction with the department.
6. Corporate and SME direct tax rationalisation
Union Budget and DTC‑related proposals provide relatively lower or incentivised corporate tax settings for SMEs and startup‑oriented entities, in line with the goal of promoting formalisation and investment.
Such relief is framed as part of an industrial policy approach where tax instruments support growth, job creation, and sector‑specific priorities rather than purely revenue maximisation.
7. GST 2.0 rate rationalisation (abolition of 12% & 28%)
The GST Council in 2025 decided to rationalise the slab structure by abolishing the 12% and 28% rates and introducing a re‑calibrated structure with new 5%, 18% and higher‑end rates, effective from 22 September 2025.
This “GST 2.0” is presented as a move towards fewer slabs, reduced classification disputes, and a balance between revenue neutrality and relief to mass‑consumption goods.
8. GST rate changes for essential goods and services
Several essential or mass‑use items see significant relief: UHT milk becomes exempt, plant‑based milk drinks move to 5%, “all Indian breads” receive full exemption, and natural honey is treated preferentially compared to artificial alternatives.
These changes indicate a redistributive approach within GST, lowering the tax incidence on food and basic consumption while preserving higher rates for luxury or non‑essential items.
9. New GST compliance architecture (MFA, ISD and others)
From 1 April 2025, key compliance reforms include mandatory multi‑factor authentication (MFA) for GST portal access and compulsory registration as Input Service Distributor (ISD) for certain multi‑location businesses.
These measures strengthen system security, standardise input tax credit distribution, and are intended to curb frauds such as fake invoicing and misuse of ITC.
10. GST reforms as “relief plus growth” package
Official communications describe the 2025 GST reforms as providing “relief for the common man” and a “boost for businesses”, effective from 22 September 2025, through rate cuts, exemptions, and compliance simplification.
Academically, 2025 marks a phase where GST policy targets both vertical equity (less burden on lower‑income consumption) and horizontal equity (cleaner credit chain and reduced cascading for compliant businesses)