Bright Times News (Delhi): India will implement the Income Tax Act 2025 on April 1, 2026, following a year of aggressive tax cuts that delivered consumer relief but slowed government revenue collections, according to data released by the Income Tax Department.
The legislation, which received presidential assent on August 21, replaces the 1961 Act with 536 consolidated sections across 23 chapters. The modernization coincides with declining tax receipts as Finance Minister Nirmala Sitharaman pivots toward customs reform ahead of Budget 2026.
Historic Tax Code Overhaul
Parliament approved the Income-Tax Bill, 2025 and the Taxation Laws (Amendment) Bill, 2025 in August. The Lok Sabha passed the revised bill on August 11, followed by Rajya Sabha approval on August 12, before receiving President’s assent nine days later.
The Income Tax Department described the reform as ushering in “a simpler, transparent and compliance-friendly direct tax regime” after more than six decades under the 1961 framework. The new act eliminates redundant provisions and simplifies language without altering tax rates or fundamental policy outcomes, officials said.
The reform follows substantial relief measures announced in Budget 2025, which raised the income tax exemption limit to Rs 12 lakh annually under the new tax regime. With the standard deduction of Rs 75,000, salaried taxpayers earning up to Rs 12.75 lakh face zero tax liability. The basic exemption limit increased from Rs 3 lakh to Rs 4 lakh, saving individuals earning Rs 12 lakh approximately Rs 80,000 annually.
Revenue Collections Under Pressure
Net direct tax collections rose 8 percent to Rs 17.05 lakh crore between April 1 and December 17, 2025, driven primarily by corporate taxpayers. Corporate tax receipts grew 10.5 percent to Rs 8.17 lakh crore, while non-corporate income tax collections increased just 6.4 percent to Rs 8.47 lakh crore, reflecting the impact of higher exemption limits on individual taxpayers.
Refund issuances dropped 13.52 percent to Rs 2.97 lakh crore as authorities conducted enhanced scrutiny of high-value claims, according to official data. The slower growth in individual tax collections contrasts with the robust performance of corporate taxpayers, who benefited from stronger profitability amid India’s economic expansion.
GST collections faced sharper pressure. Monthly receipts fell to a year-low of Rs 1.70 lakh crore in November 2025, growing just 0.7 percent year-on-year. The decline followed September’s rate rationalization, which slashed GST on approximately 375 goods and services.
The 56th GST Council meeting approved compressing the four-tier structure of 5, 12, 18, and 28 percent into principal rates of 5 and 18 percent, with a new 40 percent levy reserved for luxury and sin goods. The changes took effect from September 22, 2025, following Prime Minister Narendra Modi’s Independence Day announcement of a “Simple Tax” system designed to enhance quality of life for citizens.
Collections had peaked at a record Rs 2.36 lakh crore in April 2025, making the November slump particularly stark. The reforms aimed to simplify compliance and reduce classification disputes, but the immediate revenue impact has proven more severe than anticipated.
GST Dispute Resolution Strengthened
The government launched the Goods and Services Tax Appellate Tribunal (GSTAT) in September to resolve conflicts between central and state tax authorities. Finance Minister Sitharaman said the tribunal would reduce legal friction and address delays in litigation affecting cash flows of businesses, particularly micro, small and medium enterprises and exporters.
The tribunal began hearing cases in December, with benches operational in Delhi, Mumbai, Chennai, and Bengaluru. From April 2026, the principal bench will act as the National Appellate Authority for Advanced Rulings, providing businesses with clarity and ensuring consistency across states on tax matters.
Conflicting rulings by authority for advance rulings in different states had proved a persistent challenge in tax administration, requiring frequent GST Council interventions to issue clarifications. “With the GSTAT coming and the Centre and states on board, we open a new era of predictable, specialised jurisprudence,” Sitharaman said at the launch.
Customs Overhaul Next Priority
Sitharaman announced at the Hindustan Times Leadership Summit on December 6 that customs duty rationalization would be her “next big cleaning-up assignment”. The finance minister emphasized the need to simplify compliance, enhance transparency, and implement faceless assessment mechanisms similar to those introduced for income tax.
The government has steadily reduced customs tariffs. Budget 2025-26 proposed eliminating seven additional rates on industrial goods, bringing the total number of slabs down to eight including a zero rate. India previously had more than 40 different customs rates including specific duty rates, creating complexity for trade.
The Union Budget 2025-26 also proposed capping levies at one cess or surcharge per item, exempting the social welfare surcharge on 82 tariff lines already subject to a cess. Duty adjustments included full exemptions on cobalt powder, lithium-ion battery waste and scrap, and 12 critical minerals to secure availability for domestic manufacturing.
Industry experts are calling for end-to-end digitalization of customs processes and a potential amnesty scheme to resolve legacy disputes. The proposed reforms aim to address issues such as duty inversion and classification disputes while enhancing India’s competitiveness in global trade.
Budget 2026 Timing Uncertain
Budget 2026-27 is expected on February 1, 2026, though the date falls on a Sunday—an unprecedented situation since the Modi government moved the Budget presentation from late February to February 1 in 2017. Parliamentary Affairs Minister Kiren Rijiju said the Cabinet Committee on Parliamentary Affairs will decide the matter at an appropriate time.
The government appears inclined to maintain the February 1 convention despite the Sunday timing, according to officials familiar with the matter. If presented on that date, it would mark Sitharaman’s eighth consecutive Budget, matching former Prime Minister Morarji Desai’s tally but doing so consecutively under one Prime Minister and two successive governments.
Industry leaders have urged the government to extend the 15 percent concessional corporate tax rate for new manufacturing units, which expired in March 2024, and provide infrastructure status to data centers. The Budget will likely outline customs reforms alongside measures to sustain growth amid challenging global economic conditions.
The February 1 date facilitates quicker Finance Bill approval and smoother implementation from April 1, the beginning of the financial year. Alternative dates under consideration include Saturday, January 31, or Monday, February 2, though officials have not confirmed which option might be selected if a Sunday presentation is avoided.
