In Lok Sabha, the Minister of State in the Ministry of Finance, Shri Pankaj Chaudhary, answered Unstarred Question No. 2479 on Monday, 3 August 2026/12 Shravana, 1948 (Saka), on “Tax Reforms for Expanding Tax Base.” The question was raised by Shri Baijayant Panda, Member of Parliament.
The Minister informed the House that major reforms were undertaken during Financial Year 2025-26 to promote voluntary tax compliance, expand the tax base and reduce litigation. These measures covered direct taxes, GST, customs-duty rationalisation, registration, refunds and taxpayer outreach.
Improvement in tax buoyancy
The Government stated that tax reforms implemented during FY 2025-26 resulted in a significant improvement in the revenue buoyancy of Corporate Income Tax.
Revenue buoyancy in Non-corporate Income Tax remained muted during the year due to taxpayer-relief measures, including enhancement of the exemption limit for individuals and Hindu Undivided Families and rationalisation of the tax-slab structure.
GST rate rationalisation, effective from 22 September 2025, was aimed at simplifying the tax structure, improving ease of doing business and supporting consumption. Reduction of the tax burden on essential goods, services and emerging sectors was expected to lower the cost of living, improve affordability and stimulate demand.
Available data indicated that gross GST collections—comprising CGST, SGST and IGST—registered growth of 7.93 per cent during November 2025 to July 2026, following implementation of the rate rationalisation.
The Government, however, stated that it would be premature to draw definitive conclusions on GST revenue buoyancy because only a relatively short period had elapsed since the rollout of the reforms. GST collections are seasonal, and the period was also intermittently affected by geopolitical developments in West Asia that impacted trade and supply chains.
Direct tax reforms promote voluntary compliance
The Income-tax Act, 2025 and the Income-tax Rules, 2026 were enacted to make direct tax law concise and easier to understand, with the objective of reducing litigation and promoting voluntary compliance.
The safe-harbour regime for information technology and IT-enabled services was expanded by combining IT services, software development, knowledge-process outsourcing and research and development services into a single “ITS” category. The regime was made available to eligible entities with revenue of up to ₹2,000 crore, subject to an operating-margin requirement of 15.5 per cent.
The deadline for filing a revised return was extended from 31 December to 31 March following the tax year. A time-bound scheme was also announced under the Finance Act, 2026, enabling small taxpayers to declare foreign assets and foreign-sourced income while avoiding stricter penal provisions.
Supply of manpower was reclassified as payment to contractors instead of fees for professional services under Section 402(47), with the aim of reducing related litigation.
Deductions for contributions to provident fund, superannuation funds or Employees’ State Insurance are now permitted where the amounts are credited by the due date for filing the return under Section 263(1), addressing earlier disputes regarding the meaning of the applicable due date.
Assessment and penalty proceedings were integrated into a single common order for faster dispute resolution. In search assessments, the block period applicable to an “other person” was limited to one year where undisclosed income relates to only one tax year.
Taxpayers were also permitted to file an updated return after reassessment proceedings had commenced or where the updated return reduced a previously claimed loss. Under the Black Money Act, prosecution can no longer be initiated solely for non-disclosure of non-immovable foreign assets valued below ₹20 lakh.
GST rate structure rationalised
The 56th meeting of the GST Council approved a simplified rate structure consisting of a standard rate of 18 per cent, a merit rate of 5 per cent and a special demerit rate of 40 per cent for selected goods and services.
The 12 per cent slab was largely phased out, while the earlier 28 per cent slab was restructured into the new 40 per cent demerit rate.
GST was fully exempted on individual life-insurance policies, including term, unit-linked and endowment policies, as well as individual health-insurance policies, including family-floater and senior-citizen plans.
These changes took effect from 22 September 2025 through Notifications Nos. 9, 10 and 13 to 17/2025-Central Tax (Rate).
Customs-duty structure simplified
The Government continued the rationalisation of customs duties. The first tranche undertaken in 2023 merged rates and reduced the total number of customs-duty rates by eight.
A second tranche undertaken in 2025 reduced the number of rates to eight, including the zero rate, by removing the 25, 30, 35, 40, 100, 125 and 150 per cent slabs.
A new policy was also introduced to ensure that an industrial good does not attract more than one cess or surcharge.
Faster registration and refunds
A simplified GST registration scheme now provides automated approval within three working days to low-risk applicants passing on input tax credit of up to ₹2.5 lakh per month. The measure became effective from 1 November 2025.
Provisional refunds of 90 per cent are now sanctioned within seven days in respect of zero-rated supply claims, based on system-driven risk evaluation.
The Finance Act, 2026 amended the Central Goods and Services Tax Act to extend the same 90 per cent provisional-refund facility to claims arising from an inverted duty structure. CBIC had also issued field instructions effective from 1 October 2025 for implementation of provisional refunds in such cases pending formal legislative amendments.
Section 54(14) of the CGST Act was amended to remove the threshold for export-refund claims, benefiting small exporters using courier and postal channels. These measures were aimed at simplifying compliance, reducing classification disputes and expanding the tax base.
Digital services and taxpayer outreach
To help taxpayers understand and adapt to the reforms, the Government launched a new Income Tax website containing the provisions of the Income-tax Act, 2025 and Income-tax Rules, 2026.
An artificial intelligence-enabled chatbot, “Kar Saathi,” has been hosted on the Income Tax Department’s website to assist taxpayers in understanding income-tax provisions and complying voluntarily.
The Aaykar Setu 2.0 mobile application enables taxpayers to track compliance due dates and access information on income-tax provisions through portable devices.
The Government also conducted outreach and social-media campaigns, published and distributed brochures, issued Frequently Asked Questions and guidelines, and organised physical camps to assist PAN holders, taxpayers and deductors.
For indirect taxes, webinars and seminars were organised to explain the major reforms through presentations, discussions and interactive question-and-answer sessions.
Awareness material included short videos, reels, television commercials and tutorial videos. Information was disseminated through CBIC’s digital platforms and social-media channels, while step-by-step tutorials, user guides, brochures and guidance material were made available to help taxpayers and businesses independently file returns and comply with GST requirements.
The reforms collectively seek to simplify tax laws and procedures, facilitate voluntary compliance, improve the efficiency of refunds and registrations, reduce avoidable disputes and create a more transparent and taxpayer-friendly tax administration.
The answer can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/08/LS-Tax-Reforms-for-Expanding-Tax-Base-03.08.2026.pdf
