Income Tax Reform Till 2026

Abstract

India’s tax policy has evolved over more than a century, transitioning from colonial-era frameworks of the early twentieth century to a modern, technology-driven and compliance-focused system, now approaching a major legislative shift with the proposed Income Tax Bill, 2025 and updated Income Tax Rules. This paper explores the trajectory of reforms beginning with early taxation measures introduced in 1860 to address government revenue losses, followed by the Income-tax Act of 1922 and the Income-tax Act of 1961, highlighting their roles in shaping India’s revenue structure and broader economic outcomes. Recent reforms include the default adoption of the new tax regime, expansion of rebate thresholds from ₹5 lakh in 2019 to ₹12 lakh in 2025, increased standard deductions, and the proposed replacement of the outdated 1961 Act by the Income Tax Bill, 2025 effective from April 2026. At the same time, the rationalization of tax slabs in 2025 reflects the government’s intent to strike a balance between efficiency and consumption-driven growth. Collectively, these developments illustrate how tax policy in India has continually functioned as an instrument for both economic stabilization and fiscal consolidation.