Finance Minister Nirmala Sitharaman on Friday said the Modi government has sharply cut direct and indirect taxes within a single year, a historic first in India.
“At no point in India’s independent history have both direct and indirect taxes been reduced so significantly within a single year,” she told lawmakers in the Lok Sabha.
The minister said India under previous governments once had “absurd levels” of income tax — as high as 95% — whereas the Modi government delivered a substantial reduction in taxes this year.
The Union Budget 2025 introduced significant income tax cuts and revisions under the new tax regime (which is the default option). Resident individuals with total income up to Rs 12 lakh have zero tax liability due to an enhanced rebate and standard deduction. The income brackets within the new tax regime was expanded, and lower tax rates were introduced for some middle-income brackets.
The Finance Minister had previously said that these revisions would lead to the government foregoing approximately Rs 1 lakh crore in direct tax revenue.
The government, through the GST Council, introduced sweeping changes to the indirect tax structure, ensuring that items of daily use for the common citizen became cheaper.
The rates were rationalised from four to two slabs of 5% and 18% in September, with a majority of mass consumption goods in the lowest bracket. A 40% rate was introduced for select luxury and “sin” goods. Items like air-conditioners, TVs, small cars, and motorcycles have seen their tax rate reduced from 28% to 18%.
“It is the duty of any finance minister to raise revenue so that the various competing demands of the nation can be met. But here is a government that has already given up significant fiscal space in many ways – with two major steps taken within just one year,” Nirmala Sitharaman said.
