As 2025 drew to a close, India witnessed a profound transformation of its entire tax landscape. The year was marked by a comprehensive series of reforms that moved far beyond simple tweaks to income tax, fundamentally reshaping policies on investments, digital assets, and compliance procedures. This wasn't a single change but a strategic reset across multiple fronts.
A New Default for Personal Taxation
The most significant change for millions of Indians was the restructuring of the personal income tax system. The government firmly established the new tax regime as the default option for taxpayers from the financial year 2025-26. A major relief came in the form of revised income slabs. The entry point for the highest tax bracket was pushed significantly higher, from an annual income of Rs 15 lakh to Rs 24 lakh. This move provided substantial savings for middle-income earners, with some taxpayers saving up to Rs 1.10 lakh per year compared to the old regime, which was left unchanged.
Finance Minister Nirmala Sitharaman amplified this relief by expanding the Section 87A rebate. She announced that under the new regime, individuals with an income up to Rs 12 lakh would have no tax liability. For salaried employees, this effective limit was raised to Rs 12.75 lakh, factoring in the standard deduction of Rs 75,000. The FM stated that these measures were designed to leave more money in the hands of the middle class, aiming to boost household consumption and savings.
Clarity and Tightening on Investments & Digital Assets
The year also brought long-awaited clarity to the tax treatment of Unit-Linked Insurance Plans (ULIPs). The budget specified that profits from ULIPs not qualifying for exemption under Section 10(10D) would now be taxed as capital gains. This ended ambiguity for certain high-value policies.
In contrast to expectations of easing, the government maintained a strict stance on cryptocurrency taxation. The 30% flat tax on virtual digital assets and the 1% Tax Deducted at Source (TDS) rule remained firmly in place. Furthermore, new reporting requirements were introduced. A new section, 285BAA, will oblige prescribed entities to furnish information on crypto asset transactions, effective from April 1, 2026. The definition of a 'Virtual Digital Asset' was also amended through the Finance Act 2025 to be more comprehensive.
GST Rationalization and Compliance Ease
After years of debate, the Goods and Services Tax (GST) structure saw major simplification. Decisions from the 56th GST Council meeting led to a significant rationalization. The 12% and 28% standard slabs were eliminated for most goods and services. The revised framework now primarily revolves around two core rates: 5% and 18%. However, a higher demerit levy of up to 40% was retained for luxury items and sin goods like tobacco and certain aerated beverages.
To reduce friction for taxpayers, several compliance measures were eased. Thresholds for Tax Deducted at Source (TDS) were raised across categories from April 1, 2025. Notably, Sections 206AB and 206CCA, which imposed higher TDS rates on non-filers, were removed entirely. Partial relief was also granted for foreign remittances, with the TCS threshold under the Liberalised Remittance Scheme (LRS) increased from Rs 7 lakh to Rs 10 lakh.
A Foundational Legislative Shift
Perhaps the most monumental change of 2025 was legislative. The year saw the enactment of the Income-tax Act, 2025, a new law comprising 536 sections set to replace the six-decade-old Income-tax Act of 1961 from FY 2026-27. This new law promises plain-language drafting, replaces the concepts of "Previous Year" and "Assessment Year" with a single "Tax Year," and expands faceless processes for assessments and appeals.
Additionally, the compliance safety net was widened. The window for filing updated returns (ITR-U) to correct mistakes was extended to 48 months from the previous 24 months.
In essence, 2025 marked a decisive shift in India's tax philosophy—prioritizing fewer exemptions, broader bases, longer correction windows, and tighter oversight of new-age financial instruments. It was the year India rewrote its fiscal contract, betting on simplification, digitization, and direct relief. The true test of this ambitious reset will unfold in 2026, as the new Income-tax Act takes effect and taxpayers navigate the promised 'faceless' system.
