Ahead of the Union Budget 2026-27, the Modi government on Thursday tabled the Economic Survey 2025-26 in Parliament. Among several measures initiated during the current financial year, the government today offered a clear snapshot of how India’s tax system is being reshaped.
From income tax relief for the middle class to GST 2.0 and regulatory compliance, the Economic Survey paints a picture of a tax regime that aims to be simpler and more inclusive going forward.
The Economic Survey 2025-26 has highlighted significant tax relief measures, structural overhauls in both direct and indirect taxes, and a strong push towards data-driven compliance. Here are the key takeaways:
No income tax up to Rs 12 lakh reshapes middle-class relief
One of the biggest highlights on the direct tax front is the substantial income tax relief announced in Budget 2025-26.
As per the Survey, individuals with income up to Rs 12 lakh do not pay any personal income tax, while salaried taxpayers get an additional benefit in form of Standard Deduction of Rs 75,000, pushing the effective threshold to Rs 12.75 lakh.
The Economic Survey noted that this move has significantly eased the tax burden on the middle class and boosted household spending capacity, especially at a time when food inflation remains moderate.
New Income Tax Act to kick in from April 1
The Economic Survey confirms that the New Income Tax Act, 2025 has been enacted with the objective of simplifying tax laws and improving structural clarity. The new law is scheduled to come into effect from the tax year 2026-27.
According to the Survey, the focus is on continuity of tax policy, fewer interpretational disputes, and a framework that is easier for ordinary taxpayers to understand and comply with.
Tax base widens as ITR filings cross 9 crore
Income tax return filings rose sharply from 6.9 crore in FY22 to 9.2 crore in FY25, shows the Economic Survey.
This growth, the Survey says, reflects better compliance, improved digital systems, and increased formalisation of the economy rather than aggressive enforcement.
‘NUDGE’ approach cuts tax errors without scrutiny
A key shift highlighted is the use of behavioural nudging instead of intrusive audits. Under the NUDGE (Non-intrusive Usage of Data to Guide and Enable) framework, data analytics are used to prompt taxpayers to voluntarily correct mistakes.
The Survey notes that this approach has led to the declaration of foreign assets worth over ₹29,000 crore and a reduction in incorrect deduction claims—without resorting to searches or assessments.
GST 2.0 moves towards fewer and simpler rates
On the indirect tax side, the Survey details the rollout of GST 2.0, aimed at simplifying the rate structure. The government is moving towards a two-rate system—a standard rate of 18% and a merit rate of 5%.
The idea, as per the Survey, is to reduce classification disputes, improve compliance, and make GST more predictable for businesses.
The Survey highlights targeted GST relief across sectors to reduce everyday costs and support key industries. GST has been cut to 5% on items such as soaps, shampoos, hair oil and bicycles, while UHT milk, Indian breads and pre-packaged paneer have been exempted.
Sector-specific relief includes a reduction of GST on small cars, motorcycles up to 350cc and three-wheelers from 28% to 18%, a cut to 5% on most medicines and medical equipment, and a reduction in GST on tractors and farm machinery from 12% to 5%.
Big boost as life and health insurance get GST exemption
One of the most taxpayer-friendly announcements flagged by the Survey is the GST exemption on all individual life and health insurance policies. The move is aimed at improving insurance penetration by making premiums more affordable, especially for families and senior citizens.
Higher disposable income, lower compliance burden
Finally, the Survey underlines the broader impact on households and businesses. Tax relief combined with low food inflation has left more disposable income with families.
As Budget 2026-27 approaches, the Economic Survey 2025-26 sets the tone for a tax system that relies more on trust, technology and simplicity—changes that taxpayers will be watching closely in the days ahead.
