Before the Union Budget 2026-27 is presented, the Modi government has tabled the Economic Survey 2025-26 in Parliament, which has provided reassuring indications for taxpayers. The survey has made it clear that the government is moving towards making the country's tax system simpler, more transparent, and taxpayer-friendly. Especially for the middle class and salaried individuals, there is a possibility of significant income tax relief.
Tax-free income up to 12 lakhs?
According to the economic survey, there is a possibility of a major change in the direct tax system. It has been indicated that the government is considering applying zero tax on annual income up to 12 lakh rupees. Additionally, salaried taxpayers will be given a standard deduction of ₹75,000, which could increase the tax-free income limit to ₹12.75 lakhs. The government estimates that this will provide more money for spending in the hands of the middle class. The economic survey mentions that the new income tax law, effective from April 1, 2026, will make tax rules simpler, concise, and easier to understand. This will simplify the tax payment process and reduce compliance costs.
Significant Increase in Number of Taxpayers
The economic survey has revealed that the number of taxpayers in the country is rapidly increasing. In the fiscal year 2022, the number of income tax return filers was 69 million, which has reached 92 million by the fiscal year 2025. According to the government, this increase is not due to strict actions but due to the digital tax system, faceless assessment, and formalization of the economy. The survey also notes that the adoption of the 'Nudge Model' by the tax department has given taxpayers the opportunity to correct mistakes, resulting in the declaration of foreign assets worth more than ₹29,000 crore.
Moving Towards GST 2.0
Significant changes are expected in the indirect tax system as well. Under GST 2.0, the government is moving towards a two-slab system (5% and 18%). GST on daily use items like soap, shampoo, and bicycles has been reduced to 5%. Essential items like milk, bread, and cheese have been exempted from GST. The biggest relief is the proposal to abolish GST on life and health insurance, which could make insurance more affordable. Overall, the government's perspective is clear from the Economic Survey 2025-26, indicating a plan to base the tax system on trust, technology, and simplicity rather than rigidity.