Income-Tax Trends to Watch in India (2025-26)

 

Despite the headline shift to the new default tax regime, the story of Indian income tax in 2025 is bigger than revised slabs. Three forces—policy tweaks, digitalisation, and behavioural change—are rewriting how 96 million taxpayers earn, save, file, and plan. Below is a 1,000-word dive into the trends shaping the assessment year 2026-27.

1. Policy: From Relief to Realignment

1.1 Wider Zero-Tax Band

• The basic exemption jumps to ₹4 lakh under Section 115BAC, up from ₹3 lakh, while the Section 87A rebate climbs to ₹60,000—making income up to ₹12 lakh completely tax-free in the new regime.
• Outcome: salaried taxpayers in the ₹8-12 lakh bracket save up to ₹33,800 in tax and surcharge compared with FY 2024-25.

1.2 Marginal Re-balancing at the Top

• The highest 30% rate now kicks in only above ₹24 lakh instead of ₹15 lakh.
• Surcharge remains 10% above ₹50 lakh and 15% beyond ₹1 crore, but is capped on capital gains to keep the effective rate ≤25%.
• Combined, these tweaks lower the peak effective rate on listed-equity gains by 3-4 percentage points.

1.3 Draft Income-Tax Bill, 2025

• A plain-language Bill tabled in Parliament aims to replace the 1961 Act with a slimmer code, pruning 450 obsolete sections.
• Expect a consolidated TDS chapter, unified penalty matrix, and AI-ready definitions—laying groundwork for rule-by-rules rather than annual Finance-Act tinkering.

2. Digitalisation: Filing Turns Friction-Free

2.1 Hyper-Prefill Returns

• The new AIS 2.0 now auto-pulls bank interest, stock trades, EPF interest, and even gig-economy payouts. Early adopters report finishing ITR-1 in under seven minutes.
• Private portals leverage open APIs released by CBDT to surface discrepancies in real time, cutting defective-return notices by 28% year-on-year.

2.2 Mobile-First Tax Compliance

• More than 42% of ITRs for AY 2025-26 were filed through smartphones, up from 29% a year earlier.
• Push-notification reminders tied to the tax calendar (7th, 15th, 30th deadlines) reduce late-fee incidence among small freelancers.

2.3 AI-Assisted Scrutiny

• Risk-based e-assessment modules cross-link GST data, Form 26AS, and e-invoicing trails. High-value cash deposits trigger automated verification queries within 24 hours.
• Result: manual scrutiny falls below 0.25% of returns, reserving human officers for complex transfer-pricing and benami investigations.

3. Behavioural Shifts: How Indians Are Adapting

3.1 Rise of the New Regime

• CBDT data show 62% of salaried filers chose Section 115BAC in AY 2025-26, up from 43% the previous year, driven by the richer standard deduction (₹75,000) and simpler math.
• Old-regime loyalists are now largely home-loan borrowers and HNI taxpayers exploiting Sections 80C, 24, and 80D to the hilt.

3.2 Portfolio Realignment Toward Debt

• With equity-market gains still taxed (10%/15%), many middle-income investors pivot to tax-exempt sovereign green bonds and extended 5-year tax-saver FDs that remain eligible under Section 80C.
• Corporate bond ETFs inside NPS Tier I accounts gain traction, enjoying both employer deduction under 80CCD(2) and zero tax until withdrawal.

3.3 Freelance & Creator Economy

• Section 194M’s ₹75,000 annual TDS threshold lifts avg. compliance cost for gig workers, but the bigger push is the one-click presumptive tax calculator for receipts up to ₹75 lakh.
• Platforms like TaxBuddy and ClearTax report a 37% rise in ITR-4 filings from designers, writers, and YouTubers who now prefer presumptive 6% taxation over itemised books.

4. Compliance & Collection Metrics

Metric	FY 2023-24	FY 2024-25	% Change
Gross direct-tax collection	₹24.1 lakh cr	₹27.0 lakh cr	+12%
ITRs filed	8.19 cr	9.19 cr	+12.2%
Returns via mobile	2.38 cr	3.86 cr	+62%
Avg. refund processing time	16 days	9 days	−44%

Greater digital adoption boosts both reach and efficiency, even as slab cuts shave ₹38,000 cr off projected revenue—the gap partly met by a 19% jump in TDS and advance-tax inflows.

5. What to Watch Through FY 2025-26

1. Passage of the new Income-Tax Bill—will it embed the new-regime slabs permanently and grandfather popular deductions?
2. Expansion of prefill to capital gains schedules—CBDT pilots with depositories could auto-compute your Schedule CG as early as December filing window.
3. Convergence of GST and direct-tax data lakes—joint audits may target mismatch between reported turnover and AIS income.
4. Crypto and gaming income compliance—30% flat tax stays, but traceability improves as exchanges integrate with the PAN-based VDA ledger.
5. Green incentive sunset—Section 80EEA (first-home interest) lapses March 2026; lobbyists seek extension amid housing-market slowdown.

Practical Takeaways for Taxpayers

• Re-compute regime choice every April—most filers break even at roughly ₹3 lakh of deductions; above that, the old regime can still win.
• Update employer declarations early to sync TDS with the regime you’ll finally select; corrections mid-year hurt cash flow.
• Organise digital records—download AIS, Form 26AS, and interest certificates quarterly; surprises caught early save last-minute panic.
• Exploit employer NPS match—it remains fully deductible (10% of salary) even under the default slabs.
• Use Section 89 relief for arrears as payroll software now auto-computes it—often overlooked by job-switchers.

 Read also:GST Rate Rationalization: Complete Overview &
Essential Action Points for Business Success in 2025

Bottom line:
India’s 2025 income-tax landscape blends rate relief for the middle class, full-stack digital filing, and data-driven enforcement. Savvy taxpayers will lean on automation, evaluate regime choices annually, and ride policy clarity toward April 2026, when the proposed new Income-Tax Act could lock these trends into long-term law.