New Delhi: Following a year of aggressive tax cuts aimed at insulating the domestic economy from global headwinds, the Indian government is pivoting its focus toward a comprehensive rationalisation of customs duties and procedural simplification in the upcoming federal budget.

The 2026 Legislative Shift: Retiring the Old Guard

A new era for direct taxation begins on April 1, 2026, when the Income Tax Act, 2025, officially replaces the 64-year-old 1961 statute. The new law is designed to replace complex legalese with plain language and a modernised structure.

In a parallel move to manage demerit goods, the government has prepared two specific legislative frameworks to be at a future date:

  • Tobacco: An additional excise duty on cigarettes.
  • Pan Masala: A new cess applied on top of existing GST rates.

GST Consolidation: A Two-Tier Evolution

The 2025 reforms were characterised by a massive effort to simplify the indirect tax web. On September 22, the government slashed rates on approximately 375 items, effectively collapsing the traditional four-tier structure.

New Consolidated Structure (Post-Sept 2025)

Previous GST Structure

5% and 18% (Primary Brackets)5%, 12%, 18%, 28%
40% (Exclusively for "Sin" & Luxury Goods)              —

While the goal was to reduce litigation and enhance predictability, the exchequer has felt the impact. After a peak of Rs 2.37 lakh crore in April, GST collections dipped to a year-low of Rs 1.70 lakh crore in November—the first month reflecting the full impact of the rate reductions.

Direct Tax Relief: Boosting Middle-Class Liquidity

To spur local consumption, the government significantly raised income tax exemptions. Under the current regime, individuals with an annual income of up to Rs 12 lakh pay no tax.

Income Tax Slab Structure (2025 Regime):

Income RangeTax Rate
Up to ₹4 LakhNil
₹4 Lakh – ₹8 Lakh5%
₹8 Lakh – ₹12 Lakh10%
₹12 Lakh – ₹16 Lakh15%
₹16 Lakh – ₹20 Lakh20%
₹20 Lakh – ₹24 Lakh25%
Above ₹24 Lakh30%

Despite the relief for citizens, non-corporate tax growth slowed to 6.37% (Rs 8.47 lakh crore), trailing the 10.54% growth seen in corporate tax receipts. Additionally, tax refunds saw a 14% decline, totalling Rs 2.97 lakh crore, as the tax department implemented stricter screening for high-value claims.

The Next Frontier: Customs and "Faceless" Reforms

With GST and income tax frameworks now stabilised, Finance Minister Nirmala Sitharaman has labelled customs duty rationalisation as the government’s "next big cleaning-up assignment."

Key objectives for the upcoming phase include:

  • Tariff Simplification: Reducing customs tariff slabs to just eight by eliminating redundant rates on industrial goods.
  • Transparency: Implementing "faceless assessment" to mirror the successes of the direct tax department.
  • Digitalisation: Industry experts are calling for end-to-end digital processing and a potential one-time amnesty scheme to resolve legacy disputes and improve the ease of doing business.

With inputs from PTI