Reforms Gain Momentum In Modi 3.0: Major Tax Structure Changes Expected Ahead Of Budget

The period between 2025 and 2029 is expected to witness a significant acceleration of reforms across various sectors in India.

The government plans to implement key changes to create a more efficient and modern legal and regulatory framework, particularly in the tax structure, business regulations, and personal law.

Tax Reforms: Lightening The Burden

One of the primary objectives is to make the tax system less burdensome and more transparent. Major changes to the tax structure are under discussion, aiming to reduce the regulatory complexity that businesses and individuals currently face.

Historically, tax exemptions and slabs have remained stagnant, resulting in a higher tax burden in real terms for individuals.

Finance Minister Nirmala Sitharaman is expected to present significant tax reforms in the Union Budget for 2025-26 on February 1.

The changes will align exemption limits and tax slabs with real income levels, instead of merely monetary figures, thereby reducing the tax burden on lower-income groups and stimulating economic growth.

Addressing Legacy Anomalies: Waqf Act & Uniform Civil Code

Another major reform focus is the rectification of legacy laws, including the outdated Waqf Act and the absence of a Uniform Civil Code (UCC).

Critics argue that the Waqf Act is misaligned with the secular principles of India’s Constitution, and calls for reform have grown louder. Alongside this, the absence of a UCC continues to be a subject of debate.

The government is expected to drive reforms in these areas, ensuring that laws better suit contemporary India and reflect the spirit of equality enshrined in the Constitution.

India is also set to transform its business landscape.  Over the years, colonial-era regulations, including excessive criminalization of business practices, have hindered growth.

The Legacy Of High Taxation: A Shift Towards Growth

In the past, India’s tax system featured extremely high rates, such as the 97.25% marginal tax rate in the 1970s, which stifled economic growth. While the dishonest avoided taxes, the honest bore the brunt of these policies.

The current government’s approach aims to make tax compliance easier by reducing rates and cracking down on illicit financial practices.

GST Reforms: Moving Towards Progressive Taxation

Several reforms in the Goods and Services Tax (GST) system are also on the horizon. Opposition from a few state governments has delayed these changes, but the government remains committed to moving forward.

The GST system may see a shift from regressive flat rates to progressive tax rates that promote fairness and equity.

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