It is time India started indexing tax slabs and exemptions with inflation

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Subscribe to enjoy similar stories. NEW DELHI : One of the big stories of the Indian economy has been the sharp increase in personal income tax collections. The personal income tax collection (excluding securities transaction tax) stood at ₹4,52,286 crore in April-August 2024-25, up 25.5% from ₹3,60,381 crore in the year-ago period.

Hopefully, it should lead to a more stable and equitable tax base for India. As the government’s revenue from personal income tax rises, it will likely face greater scrutiny and higher taxpayer expectations regarding the tax system's efficiency, transparency, stability, and fairness. Some of these sentiments came through as the government brought about the rationalization of capital gains taxes.

Interestingly, the growth in these collections has also coincided with significant changes in India’s personal tax system. The Indian tax system is primarily divided into two categories: the old tax regime and the new tax regime. The old tax regime evolved over several decades, allowing individuals to claim various deductions and exemptions under different sections of the Income Tax Act, 1961.

The new tax regime, introduced in the Union Budget 2020-21, offers a simplified tax structure with lower tax rates for the same income level but does away with most exemptions and deductions. The new regime was made the default tax regime in 2023, though it remains optional for individuals (especially the salaried class). The new regime is simpler and makes it easier to comply without making it burdensome on the taxpayers.