Taxing Times: Modi's 10-Year Journey To Stabilize India's Income Tax System

The Narendra Modi government has pursued a strategic approach towards income tax reforms, focusing on stabilizing the income tax structure in India over the past decade. Instead of frequently adjusting tax rates and slabs, the government has emphasized long-term stability, ensuring that taxpayers have clarity and consistency. This approach, beginning in 2014, has brought about several transformative changes to the taxation system.

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Taxing Times: Modi's 10-Year Journey: Key Focus Areas

A central goal of the Modi administration has been to streamline the income tax framework while encouraging compliance. Major areas of focus included:

• Simplification of Tax Filing: The introduction of measures like e-filing and faceless assessments improved transparency and made the tax process more efficient.
• Dispute Resolution: Initiatives such as the Vivad se Vishwas scheme, aimed at resolving tax disputes without resorting to lengthy court processes, have helped ease the burden on both taxpayers and the judiciary.
• Rate Rationalization: Efforts to simplify the tax system and make it easier for the common person to understand have been a major part of the administration's strategy.

The Game-Changer: Introduction of the New Income Tax Regime

One of the Modi government's most significant reforms came with the launch of the new income tax regime in FY21. The primary aim was to provide a simpler, lower-tax system with minimal exemptions and deductions. This new regime marked a departure from the complex system of tax breaks that were previously in place.

The government introduced this system to streamline the filing process and make it easier to administer, while reducing the tax burden for taxpayers. As a result, the new tax regime gained widespread acceptance, with over 70% of taxpayers opting for it in 2024.

Himadri Mukhopadhyay, Secretary of the Income Tax Bar Association Calcutta, highlighted that the new system's focus on simplicity and lower rates has resonated with the public and has contributed to increased compliance.

Impact on Direct Tax Collection and Compliance

The government's push for tax reforms has yielded impressive results in terms of direct tax collection. Between 2013-14 and 2023-24, the net direct tax collections rose by more than 300%, from Rs 6.38 lakh crore to Rs 19.18 lakh crore. This surge has been driven by the expansion of the tax base and greater taxpayer compliance, evidenced by the rise in the number of income tax returns (ITRs) filed. In FY24, India saw 8.09 crore ITRs filed, compared to just 3.80 crore in FY14.

However, one of the challenges the government faces is reducing the high number of Nil ITRs, or returns that do not result in any tax payment. In FY24, this figure stood at 4.90 crore, indicating that a significant portion of the population is still not paying taxes despite filing returns.

Evolution of Income Tax Rates from 2014 to 2024

Over the past decade, the Modi government has made key adjustments to income tax rates, further streamlining the system:

Income Tax Rates in FY 2014-15:

• Up to Rs 2.5 lakh: No tax
• Rs 2.5 lakh to Rs 5 lakh: 10%
• Rs 5 lakh to Rs 10 lakh: 20%
• Above Rs 10 lakh: 30%

Income Tax Rates in FY 2024-25 (New Regime):

• Up to Rs 3 lakh: No tax
• Rs 3 lakh to Rs 7 lakh: 5% on income exceeding Rs 3 lakh
• Rs 7 lakh to Rs 10 lakh: Rs 20,000 + 10% on income exceeding Rs 7 lakh
• Rs 10 lakh to Rs 12 lakh: Rs 50,000 + 15% on income exceeding Rs 10 lakh
• Rs 12 lakh to Rs 15 lakh: Rs 80,000 + 20% on income exceeding Rs 12 lakh
• Above Rs 15 lakh: Rs 1.4 lakh + 30% on income exceeding Rs 15 lakh

Conclusion

As India approaches Budget 2025, the Modi government's income tax reforms have laid the groundwork for a more stable, efficient, and taxpayer-friendly system. With greater focus on simplicity, reduced exemptions, and an improved compliance framework, these changes have set a new direction for India's tax administration. However, challenges like reducing Nil ITRs remain and will need further attention in the years to come.

The continuous evolution of India's income tax landscape under the Modi government reflects its commitment to modernization, transparency, and long-term stability.