India’s tax system is set for a major overhaul beginning April 1, 2026, with the implementation of the Income Tax Act, 2025, replacing the six-decade-old Income Tax Act of 1961. The government says the move is aimed at simplifying tax laws, reducing litigation, and improving voluntary compliance.
While the new law introduces structural and procedural changes, the core tax framework will largely remain intact. However, several provisions will directly impact individual taxpayers, businesses, and consumers.
No Income Tax up to ₹12 Lakh
One of the most significant takeaways for salaried individuals is the continuation of the tax relief announced in the Union Budget 2025.
Under the new tax regime:
- Annual income up to ₹12 lakh will remain tax-free
- Income between ₹4 lakh and ₹8 lakh will attract 5% tax
- Income above ₹24 lakh will be taxed at 30%
- No exemptions or deductions will be available under this regime
The government believes the simplified slab system will encourage more people to shift to the new regime and reduce dependency on tax-saving instruments.
Why a New Income Tax Law?
According to government officials, the existing Income Tax Act had become:
- Overly complex
- Difficult to interpret
- Prone to litigation
- Unsuitable for a digital economy
The Income Tax Act, 2025 aims to:
- Simplify legal language
- Reduce ambiguity
- Minimise disputes
- Promote voluntary tax compliance
- Align taxation with digital governance
Officials say the new law is designed to make compliance easier for both individuals and businesses.
No Major Changes in GST Rates
The government has clarified that no major GST rate changes are planned for 2026.
However:
- The GST rationalisation implemented in September 2025 will continue
- Over 375 items have already seen rate adjustments
- GST structure has been streamlined into 5% and 18% slabs
- Higher tax rates will continue for luxury and sin goods
- The focus remains on stabilising GST collections and reducing classification disputes.
- Higher Taxes on Cigarettes and Pan Masala
- From 2026, the government plans to introduce:
- Additional excise duty on cigarettes
- New cess on pan masala
- These will be levied over and above existing GST rates.
The objective is twofold:
- 1. Discourage consumption of harmful products
- 2. Increase government revenue from non-essential goods
These changes are expected to marginally increase retail prices.
Customs Duty Reforms in Focus
After GST and income tax reforms, the government’s next big focus area is customs duty rationalisation.
Key developments include:
- Reduction in customs duty slabs to eight
- Expansion of faceless assessment
- Digitisation of import-export processes
- Faster clearance timelines
The aim is to improve ease of doing business and make Indian trade more competitive globally.
What It Means for Taxpayers
- ✔ Income up to ₹12 lakh remains tax-free
✔ Simpler and clearer tax structure
✔ Reduced compliance burden
✔ Digital-first tax administration
✖ Fewer deductions under new regime
✖ Some products may become costlier
Experts believe the reforms will benefit middle-class taxpayers in the long run, though careful financial planning will be required due to reduced exemptions.
The Road Ahead
The government has indicated that stakeholder consultations will continue before the final rollout. Any operational clarifications will be issued through rules and notifications ahead of April 2026.
For taxpayers, the message is clear:
The tax system is becoming simpler, but planning will matter more than ever.
