Tax Structure in India: Learn Indian Tax System & Taxation in India

Tax structure in India: Decoding the key features

Here’s a list of key features that will serve as an introduction to the tax structure in India:

 

• Types of taxes

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  Taxes in India are collected under two categories: Direct Tax and Indirect Tax. Before moving into details, know that direct taxes are collected directly from the assesse, while indirect taxes are levied on goods and services.

• Direct tax:

  Under this type of tax, both individuals and corporations are liable to pay different kinds of taxes, including income tax, wealth tax, etc.

• Indirect tax:

  As mentioned earlier, this type of tax is levied on goods and services. Unlike direct tax, goods and services tax is collected by intermediaries who are involved in selling those goods and services. GST was introduced in India in 2017 ⁶ to amalgamate all the taxes collected on the sale, consumption and manufacture of goods and services.

 

At present, there are three different taxes at various levels:

• CGST

  stands for Central Goods and Services Tax. This type of tax is levied on transactions of goods and services within one state.

• SGST

  stands for State Goods and Services Tax. This type of tax is levied by the state on the intrastate movement of goods and services.

• IGST

  stands for Integrated Goods and Services Tax. This type of tax is collected by both the central and state governments.

 

• Revenue authorities

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Tax collection in India is overseen by different revenue authorities, including:

1. Central Board of Direct Tax (CBDT)

   This revenue authority comes under the Ministry of Finance and is responsible for providing inputs and planning policies with respect to direct tax laws.

2. Central Board of Indirect Taxes and Customs (CBIC)

   This revenue authority primarily assists the central government in matters related to GST, customs, excise duty, etc. 

• Tax slab

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  Before we get into the details of the tax slabs, let’s first understand what tax slabs are. Under the income tax structure in India, every individual who is liable to pay tax comes under different tax slabs based on their income. This unique slab-based approach creates an equitable tax structure in India. Now let’s take a look at the income tax slabs according to the new tax regime as announced under the Union Budget 2025*: ¹

 

Note: This tax slab is applicable for the 2025-2026 financial year.

 

What is the new tax regime?

In 2020, a new tax regime was introduced to streamline collection and payment and promote a more equitable tax structure. However, remember that those who opt for the new tax regime cannot claim benefits and deductions like HRA, 80C, 80D, etc.¹

 

What do you need to know about the new tax slabs?

Now that you have understood the fundamentals of the tax structure in India, here are some important details you need to know about the new tax regime:¹

 

• Default tax regime:

  By default, tax regime, individuals automatically come under this new tax regime. Those who want to choose the old regime have to fill out Form 10-IEA before the due date.

• Exemption for all:

  The new tax regime promises zero tax liabilities for those who have income up to ₹4,00,000/annum.⁷

• Surcharge rate:

  Under the old tax regime, the highest surcharge rate was 37%, which has now been reduced to 25% for income over Rs 5 crores. 

• Revised slabs:

  The tax slabs have been revised to provide relief to individuals who are earning less than ₹12,00,000 for the financial year 2025-26 the assessment year 2026-27) under the new tax regime.

• Standard deductions:

  The standard deduction has been increased to ₹75,000 for salaried employees. ⁴
  
  

• Family pension:

  The limit of maximum deductions on a family pension, that was earlier ₹15,000 , was increased to ₹25,000 in Budget 2024.⁴

• NPS contribution:

  The deduction on the employer’s NPS contribution was 10% earlier than has been increased to 14%.⁴

 

The bottom line

The Indian tax structure has been modified over the years to ensure adaptation to changes in the economic and income structure. Standardization of income, simple governing laws, cumulative tax collection for both direct and indirect tax etc, are the key features of the current tax structure in India.

 

FAQs

 

1. What is the current tax structure in India?

   According to the new tax regime, income up to ₹4,00,000 is not taxable. However, with an income tax rebate u/s 87A, taxable income up to ₹12,00,000 does not have any tax liability⁴.

2. Which is better, the old or the new regime?

   The decision to choose between the new and old regime should be based on the total deductions and choose accordingly.