India's Tax Base Is Expanding—but Is Compliance Getting Simpler?

Two numbers, both drawn from the government's own records, make the case for optimism.

The first sits in the Income Tax Department's time-series data: 12.13 crore taxpayers in assessment year 2024-25, against 10.41 crore the year before. That is a swing of roughly 1.7 crore people in twelve months — the population of a mid-sized state wandering into the direct tax net. The second comes from the Finance Ministry's ninth-anniversary note on GST: 1.65 crore registered taxpayers as of May 2026, up from 66.5 lakh when the tax was switched on in July 2017.

By any reasonable standard, the base has widened. Returns filed in FY 2024-25 crossed 8.68 crore, including revised returns. Net direct tax collections touched ₹22.26 lakh crore, pushing the direct-tax-to-GDP ratio to 6.73 per cent, the highest in the series. GST gathered ₹22.27 lakh crore in FY 2025-26, and the first quarter of FY 2026-27 came in at ₹6.32 lakh crore gross, 8.4 per cent ahead of the same quarter last year.

And it is being done cheaply. The cost of collecting direct taxes fell to 0.41 per cent of collections in FY 2024-25, the lowest the department has ever recorded. Whatever else one thinks of Indian tax administration, it is not an expensive machine to run.

One caveat is worth parking here early. Gross tax revenue is budgeted at ₹44.04 lakh crore for 2026-27 against a revised ₹40.78 lakh crore for 2025-26 — growth of about 8 per cent, which trails the 10 per cent nominal GDP growth the Budget itself assumes. A wider base has not yet translated into higher buoyancy. More filers is not the same as more revenue per rupee of output.

So the first half of the question answers itself. The second half is where it gets interesting.

The simplification scoreboard

On paper, 2026 has been a good year for anyone who wanted the rulebook thinned out.

The Income-tax Act, 2025 came into force on 1 April 2026, retiring a statute that had been amended, re-amended and judicially chewed over for sixty-five years. The new Act runs to 536 sections against 819 in the 1961 law. The subordinate machinery was cut harder still: rules down from 511 to 333, forms from 399 to 190. Provisos and explanations have been folded into the main text, and long narrative provisions replaced by tables and formulae. The clumsy pairing of "previous year" and "assessment year" — a distinction that has tripped up first-time filers for generations — is gone, replaced by a single "tax year".

The government has been careful about what it is claiming. The press release accompanying the commencement described the exercise as simplifying and modernising the law "without altering the underlying tax policy". This is a drafting reform, not a rate reform. That is not a criticism, but it is a useful expectation-setter: a shorter statute does not mean a smaller tax bill, and it does not, by itself, mean less work.

On the indirect side, GST 2.0 landed on 22 September 2025 and collapsed the slab structure into two principal rates, 5 and 18 per cent, with a 40 per cent demerit rate reserved for tobacco, aerated drinks, luxury vehicles and similar goods. Classification disputes have been GST's most reliable source of litigation since 2017, and a flatter rate structure should thin them out over time. From 1 November 2025, low-risk applicants can be registered within three working days on an automated basis under new Rules 9A and 14A, and 90 per cent provisional refunds under the inverted duty structure began flowing around the same date.

Budget 2026 kept going. TCS on overseas tour packages and on education and medical remittances under the Liberalised Remittance Scheme was cut to 2 per cent. TDS on manpower supply services was capped at 1 or 2 per cent, which matters a great deal to labour-heavy MSMEs. Buyers of property from non-residents can now deduct using their own PAN instead of obtaining a separate TAN. The window for filing an updated return moved from 31 December to 31 March, lower-deduction certificates shifted from officer discretion to a rule-based automated process, and several procedural lapses were decriminalised.

Taken together, that is a serious body of work. It deserves the credit it has received.

"A tax system can become easier to enter and harder to live inside. India, for now, is managing both at once."

Where the friction went

Simplification is not the same thing as effort reduction, and this is where the ledger turns.

Consider GSTR-3B. Since the July 2025 tax period, the outward liability in Table 3 is auto-populated from GSTR-1 and cannot be edited. A wrong figure can no longer be quietly corrected in the summary return; it has to be fixed upstream through GSTR-1A before 3B is filed. Running alongside it, the Invoice Management System requires recipients to accept, reject or hold each inward invoice, because those decisions determine what appears in GSTR-2B and what credit is actually claimable. Hard-locking of the input tax credit table is expected to follow.

None of this is unreasonable. It is how a leaking credit chain gets closed. But describe it plainly and you get a monthly, invoice-level reconciliation duty that did not exist three years ago, now carrying real consequences if it is neglected. The return has become easier to file and considerably harder to get right.

The leakage numbers explain the tightening. In FY 2025-26 alone, central tax formations detected 30,162 fake input tax credit cases involving ₹74,782 crore, with 358 arrests — against ₹36,373 crore across 9,190 cases two years earlier. Over three years the running total is close to ₹1.7 lakh crore. A system under that kind of assault will keep adding validation layers, and taxpayers will keep absorbing the cost of them.

Direct tax carries its own overhang. Roughly 5.4 lakh appeals were pending before Commissioners (Appeals) as of FY 2024-25, tied to disputed demand of about ₹16.75 lakh crore. The department disposed of 1.72 lakh cases that year and set a target above 2 lakh for FY 2025-26. That is creditable work, but at that clip the queue outlives a fair number of the businesses standing in it. For a taxpayer sitting on a demand raised in 2019, the elegance of a 536-section statute is cold comfort.

There is at least a relief valve now on the indirect side. The GST Appellate Tribunal became operational across state benches during 2026, with backlog appeals given until 30 June 2026 to be filed. It took roughly seven years to stand up an appellate forum the law had promised in 2017, and in the interim taxpayers went to High Courts or went nowhere. Its arrival is welcome; the pendency it inherits is not small.

Then there is the plumbing. For AY 2025-26, the filing deadline moved from 31 July to 15 September, and then, after portal trouble on the final day, to 16 September. For AY 2026-27, the online ITR-5 utility went live on 5 August 2026 and ITR-6 on 18 August, leaving firms and corporate filers a compressed runway. Utilities that arrive late are a compliance burden by another name, and they fall hardest on the small practitioner handling two hundred returns rather than the partner handling twenty.

Two things can be true

The honest reading is that India has traded one kind of difficulty for another.

The old burden was interpretive and adversarial: obscure provisions, physical paperwork, an assessing officer with wide discretion, and a queue at a counter. The new burden is operational and continuous: clean master data, monthly reconciliation, invoice-level decisions, e-invoicing thresholds, and a permanent low-grade obligation to keep your records agreeing with somebody else's.

The Economic Survey 2025-26 set out the administration's preferred method under the label NUDGE — using data to prompt voluntary correction rather than reaching first for enforcement. The results are not trivial. More than 8,500 entities revised their TDS returns after being nudged, adding 1.08 crore deductees and ₹4,825 crore in tax. A foreign-assets campaign reached about 25,000 taxpayers, drew a 61 per cent response rate and surfaced ₹29,000 crore in declared assets. Around 1.22 crore updated returns have been filed since the facility was widened.

That is a smarter state. It is also a more present one. A nudge is still a letter you have to answer.

Which is why the answer to the headline question depends entirely on who is being asked. For a salaried filer with one Form 16 and a pre-filled return, compliance in 2026 is unambiguously easier than it was in 2016. For a multi-state manufacturer reconciling a few hundred vendors every month, or a promoter carrying a six-year-old appeal and a demand he cannot pay, the answer is closer to no.

So the metric worth watching is not registrations. It is disposal rates at CIT(A) and the GST Appellate Tribunal, whether filing utilities ship on time, and how often deadlines need rescuing in September. The base is expanding, and that is a genuine achievement. Simplicity, for the moment, is being distributed rather unevenly.

Sources

1.        Income Tax Department — Time Series Data (FY 2000-01 to 2024-25) — https://www.incometaxindia.gov.in/documents/d/guest/final-time-series-data-pdf

2.        PIB — Nine Years of GST: Simplifying Taxation, Strengthening India (July 2026) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2279318&reg=3&lang=1

3.        PIB — Income-tax Act, 2025 comes into force from 1st April 2026 — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2248005&reg=3&lang=2

4.        Income Tax Department — Objective and Scope of the New Act (sections, rules and forms count) — https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/objective-and-scope-new-act

5.        GSTN — Monthly GST Revenue Statement, June 2026 — https://tutorial.gst.gov.in/downloads/news/for_publishing_monthly_gst_revenue_june_2026.pdf

6.        GST Portal — GST Statistics (returns, active taxpayers, collections) — https://www.gst.gov.in/download/gststatistics

7.        PRS Legislative Research — Union Budget 2026-27 Analysis — https://prsindia.org/files/budget/budget_parliament/2026/Union_Budget_Analysis-2026-27.pdf

8.        Income Tax Department — News and e-Campaigns (AY 2026-27 utility release dates) — https://www.incometax.gov.in/iec/foportal/latest-news

9.        Rajya Sabha reply, 28 July 2026 — Fake ITC detection FY 2023-24 to FY 2025-26 (reported) — https://a2ztaxcorp.net/rajya-sabha-govt-intensifies-action-against-fraudulent-gst-itc-claims-over-%E2%82%B91-69-lakh-crore-detected-in-three-years-54635-itc-fraud-cases-detected-by-central-tax-formations-during-2023-24/

10.    Business Standard / A2Z Taxcorp — CIT(A) pendency and disposal targets, post-Budget briefing (Feb 2026) — https://a2ztaxcorp.net/budget-2026-income-tax-dept-eyes-disposal-of-over-200k-cita-appeals-this-year/

11.    Business Today — Economic Survey 2025-26 on the NUDGE framework — https://www.businesstoday.in/union-budget/personal-finance/story/economic-survey-2025-26-nudge-framework-reshaping-indias-tax-regime-with-data-and-trust-notes-cea-513443-2026-01-29

12.    Business Today — Budget 2026: TDS/TCS overhaul and compliance relief — https://www.businesstoday.in/personal-finance/tax/story/budget-2026-new-income-tax-act-2025-tds-tcs-overhaul-and-compliance-relief-headline-sweeping-tax-reforms-513995-2026-02-01

13.    IBEF — Two-rate GST structure approved, effective 22 September 2025 — https://www.ibef.org/news/two-rate-gst-structure-approved-new-rates-to-kick-in-from-september-22-2025-union-minister-for-finance-and-corporate-affairs-ms-nirmala-sitharaman

14.    CBIC Notification No. 18/2025 — Simplified GST registration under Rules 9A and 14A (reported) — https://taxguru.in/goods-and-service-tax/rules-gst-registration-3-working-days-1st-november-2025-notified.html

15.    Grant Thornton Bharat — The GSTAT Manual: A Guide to Appeals under GST — https://www.grantthornton.in/insights/thought-leadership/the-gstat-manual-a-guide-to-appeals-under-gst/

16.    DD News — Over 7 crore ITRs filed for AY 2025-26 — https://ddnews.gov.in/en/over-7-crore-itrs-filed-so-far-for-ay-2025-26-income-tax-department/

17.    Moneycontrol / A2Z Taxcorp — Finance Bill 2026 GST reforms: faster registration, 90% provisional refunds — https://www.moneycontrol.com/news/business/finance-bill-2026-likely-to-carry-key-gst-reforms-for-quicker-registration-90-automatic-refunds-13659997.html