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With the new income tax law poised to take effect, policymakers hope for a shift toward a modern, tech-driven and transparent tax ecosystem that will support economic growth
Middle-class relief will continue, while GST and customs reforms will focus on digitisation and compliance.
The countdown has begun for a sweeping overhaul of the country’s tax architecture, with the government set to replace the six-decade-old Income Tax Act, 1961, from 1 April 2026. The new law, the Income Tax Act, 2025, is aimed at making the system simpler, more transparent and fully digital, while reducing friction between taxpayers and the authorities.
Officials say the new regime is designed to minimise tax notices, speed up refunds and eliminate cumbersome paperwork. A key objective is to create what policymakers describe as a “fear-free” tax environment, where procedures are easier to follow and disputes do not spiral into long-drawn litigation. The government has often argued that the existing 1961 Act is not only complex but also couched in language that is difficult for ordinary taxpayers to understand. The upcoming law, by contrast, promises simpler drafting so that individuals can better comprehend their obligations without excessive reliance on professionals.
Relief for the middle class is expected to continue under the new system. The concessions announced in the 2025 Budget are likely to carry forward into 2026, with the government keeping income up to Rs 12 lakh a year free of tax under the new regime. However, unlike the older structure, the new framework does not provide deductions for insurance, housing loans or other savings instruments. Despite this, the combination of lower rates and higher exemption limits is seen as especially beneficial for salaried taxpayers.
Meanwhile, the Goods and Services Tax (GST) framework that was revised in September 2025 will complete its first full financial year in 2026. Major rate changes are therefore considered unlikely in the near term. In earlier rounds of reform, tax rates were cut on about 375 goods and services, pushing most items into the 5% and 18% slabs. The current focus is on deepening digitisation and transparency in GST collection to curb evasion.
Customs duty is also on the reform radar. In the 2025-26 Budget, the number of tariff slabs was pruned to just eight, alongside the rollout of mandatory “faceless assessment” and end-to-end digital processes. The move is expected to ease compliance for importers and exporters, accelerate clearances and strengthen India’s integration with global supply chains, potentially lowering business costs and boosting competitiveness.
Prices, however, will not move uniformly. Higher taxes and cess on tobacco products, cigarettes and pan masala are set to stay, keeping these items expensive. At the same time, increased digitisation and rationalised customs duties could make electronics, mobile phones and certain imported components more affordable.
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January 05, 2026, 15:06 IST
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