India's 2025: Major reforms in GST, Income Tax signal new era

2025 was a landmark year for India with major structural reforms. Highlights include the GST 2.0 overhaul, a new Income Tax Act, 100% FDI in insurance, private entry in nuclear energy, new labour codes, and an S&P sovereign rating upgrade.

Calendar year 2025 marked a defining phase in India's economic and legal landscape, with the government rolling out a series of structural reforms, tax rationalisation measures, regulatory simplification initiatives and monetary support steps, creating a more enabling environment for medium- to long-term growth.

Sweeping Tax Reforms: GST 2.0 and New Income Tax Act

A major highlight of the year was the overhaul of the Goods and Services Tax framework under GST 2.0. The indirect tax system was simplified from a four-rate structure to a two-rate regime of 5 per cent and 18 per cent, while select sin goods were placed under a higher 40 per cent slab. The reform was aimed at improving compliance and reducing classification disputes. Alongside, The New Income Tax Act, was passed replacing the decades-old legislation with a more readable and streamlined law. The number of sections was reduced from over 800 to 536, with the Act scheduled to come into force from April 1, 2026.

Key Industrial and Sectoral Reforms

On the industry front, the government opened the insurance sector fully to foreign investment by allowing 100 per cent FDI, a move expected to deepen penetration, enhance competition and reduce premium costs. MSME reclassification was another key reform, with investment limits raised by 2.5 times and turnover thresholds doubled, enabling growing enterprises to retain MSME benefits longer. In the energy sector, the Nuclear Energy (SHANTI) Bill ended the state monopoly, permitting private and foreign participation in civil nuclear projects while introducing liability caps, a step widely seen as critical for long-term energy security.

Labour and Rural Employment Overhaul

Labour and employment reforms was another big reform. The consolidation of 29 labour laws into four labour codes simplified compliance and enhanced labour flexibility, with establishments employing up to 300 workers no longer requiring prior government approval for layoffs. In rural employment, the G RAM G Act increased guaranteed workdays from 100 to 125 days, strengthening income security for rural households.

Modernisation of Legal and Regulatory Framework

Significant legal and regulatory changes were also undertaken. The Bharatiya Nyaya Sanhita replaced the colonial-era IPC, addressing contemporary crimes such as cyber terrorism and mandating digital evidence with stricter trial timelines. Under the Jan Vishwas framework, over 200 minor offences were decriminalised and several obsolete laws repealed to improve ease of doing business. While not a new reform, the Insolvency and Bankruptcy Code continued to deliver results. An RBI report highlighted a recovery rate exceeding 36 per cent in FY25, accounting for more than half of total recoveries by banks.

Monetary Easing and Fiscal Support

On the monetary and fiscal support side, the middle class received income tax relief with no tax liability up to Rs 12 lakh. During the year, RBI cut policy rates by 125 basis points and infused approximately Rs 11.7 lakh crore of liquidity through open market operations, CRR cuts and forex swaps, aiding transmission.

Sovereign Rating Upgrade Boosts Confidence

Capping the year, S&P Global Ratings upgraded India's sovereign rating from BBB- to BBB, while Moody's and Fitch maintained stable outlooks, reinforcing confidence in India's macroeconomic trajectory ahead of 2026. (ANI)

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