The Finance Ministry has firmly denied that India follows a “multi-layered income-tax structure”, even as Parliament last week during the first leg of the Budget session witnessed detailed discussions on both direct and indirect tax reforms.
In a written reply last week, the Finance Ministry clarified that income tax in India is governed solely by the Income-tax Act, 1961, and recent reforms in GST and Customs are aimed at simplification, not complication.
‘India does not have a multi-layered income-tax structure’
Responding to concerns raised in Parliament, the Finance Ministry said: “India does not have a multi-layered income-tax structure. The income-tax is levied, on the income earned, as per the Income-tax Act, 1961. Further, surcharge and cess are levied additionally on the amount of income-tax. Other direct taxes like Wealth Tax, Gift Tax and Fringe Benefit Tax have been removed from the statute over a period of time.”
The clarification is significant as debates around surcharge, cess and multiple tax slabs often lead to the perception that the structure is layered or complex. The government has maintained that income tax is imposed only under one law, while other direct taxes have already been phased out over the years.
GST 2.0: From 4 slabs to 2 major rates
On the indirect tax front, the government highlighted major reforms approved in the 56th GST Council meeting held on September 3, 2025.
The biggest change is the rationalisation of the earlier four-tier GST rate structure into a simplified format — largely centred around 5% (Merit Rate), 18% (Standard Rate) and 40% (Demerit Rate for select goods).
The 12% slab has largely been phased out, while the earlier 28% slab has been restructured into a 40% rate for only a limited list of demerit goods.
What changed in GST slabs?
After the notification (effective September 22, 2025):
NIL rate expanded: Essential food items like UHT milk, paneer, Indian breads (chapati/roti/paratha), exercise books, maps and 36 life-saving drugs have been brought under zero tax.
5% slab expanded: Common-use items such as soap, toothpaste, hair oil, bicycles, most food items, tractors, renewable energy devices, all drugs and medicines (earlier 12%), textiles and footwear up to ₹2,500 are now included.
18% slab: Small cars, TVs, ACs, cement, buses, trucks and most other goods now fall under this category.
40% slab: Limited to luxury cars, high-end motorcycles, yachts, tobacco products (except bidis), aerated beverages and similar demerit goods.
The services tax structure has also been aligned accordingly, with some services moving from 12% to 18%, while common-man services like hotel accommodation (room tariff up to Rs 7,500 per day) are now under 5%.
Big relief: GST exemption on life and health insurance
One of the most notable decisions is the full exemption of GST on all individual life insurance and health insurance policies, including family floater and senior citizen policies.
The move aims to make insurance more affordable and improve coverage across the country.
Easier GST registration and faster refunds
To improve compliance and ease of doing business, several steps have been taken:
Automated GST registration: Low-risk small businesses can now get GST registration within three working days. This reform is expected to benefit nearly 96% of new applicants.
Simplified scheme for e-commerce sellers: Small suppliers selling via e-commerce platforms may get easier registration norms across states.
90% provisional refunds: For exporters and businesses facing inverted duty structures, up to 90% of refund claims can now be sanctioned provisionally based on system-based risk evaluation.
Refund for low-value exports: Threshold limits have been removed for certain export refunds, benefiting small exporters using courier or postal mode.
Customs reforms: Digital, faster and more transparent
The government also listed several Customs reforms aimed at improving trade facilitation: electronic Certificates of Origin (e-CoO), electronic Cash Ledger for customs duty payments, faster duty drawback disbursal through PFMS, automation of exchange rate publishing Auto Let Export Order for courier shipments and digital post-clearance revision mechanism under Section 18A of the Customs Act.
In addition, restructuring of National Assessment Centres and introduction of single electronic bonds are expected to reduce paperwork and compliance burden.
Summing up…
While rejecting the claim of a multi-layered income tax regime, the government used the opportunity to underline that ongoing reforms in GST and Customs are focused on simplification, rationalisation and ease of doing business.
The shift towards fewer slabs, digital compliance, faster refunds and expanded exemptions signals an attempt to streamline India’s tax ecosystem rather than make it more layered.
