Key Income Tax Reforms Under FM Sitharaman’s Previous Budgets

Over the last four years, Finance Minister Nirmala Sitharaman has brought transformative changes to India’s income tax framework. With a focus on simplifying processes and enhancing benefits, her policies have shaped a more taxpayer-friendly system. Here are five major reforms from her recent budgets that highlight this evolution.

Streamlined Tax Regime and Simplified Capital Gains Structure

The introduction and enhancement of the new tax regime have been pivotal since Budget 2020. Taxpayers under this regime enjoy no tax on incomes up to ₹7.75 lakh (salaried) and ₹7 lakh (others), with high earners benefiting from a reduced maximum tax rate of 39%.

Capital gains taxation has been overhauled for simplicity. Holding periods have been consolidated to just 12 and 24 months for all assets. Long-term gains are taxed uniformly at 12.5%, while short-term gains are at 20%. However, gains from debt investments are taxed according to individual slab rates.

Improved NPS Benefits, TCS Reforms, and Digital Taxpayer Services

The National Pension System (NPS) has seen considerable improvements, particularly for private-sector employees under the new tax regime, who can now claim a deduction of up to 14% of their basic salary. The NPS Vatsalaya scheme was also launched to encourage early participation.

Tax Collection at Source (TCS) has been enhanced, allowing credits to be adjusted against TDS on salaries, and simplifying tax computations for employees.

Technological advancements have improved the overall taxpayer experience, reducing income tax refund processing time to 10 days and enhancing data transparency with AIS and TIS. A next-generation Common IT Return Form is also in development to streamline compliance further.

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