Impact of Income Tax on Indian Economy

Gomati Prasad Rai

doi:10.69968/ijisem.2026v5i3500-504

Authors

Gomati Prasad Rai Assistant Professor, Faculty of Commerce, K.N.I.P.S.S. Sultanpur

DOI:

https://doi.org/10.69968/ijisem.2026v5i3500-504

Keywords:

Income Tax, Indian Economy, Tax Reforms, Income-tax Act 2025, Fiscal Stability

Abstract

Income tax, as a direct tax levied by the Central Government, plays a crucial role in shaping India's economic development by generating revenue, reducing income inequality, and financing public welfare programmes. This paper examines the concept, importance, trends, and patterns of income tax in India, along with its broader economic impact on consumption, savings, investment, and fiscal stability. The study also introduces the newly enacted Income-tax Act, 2025, which replaces the Income-tax Act, 1961, and represents a shift towards a simplified, technology-driven, and taxpayer-friendly direct-tax framework effective from 1 April 2026. Based on secondary data drawn from RBI publications, government reports, and Economic Survey 2025-26, the analysis shows substantial growth in personal income tax and non-corporate tax collections between FY 2022 and FY 2025, outpacing overall GDP growth. The findings highlight income tax's growing significance in strengthening India's fiscal framework and supporting sustainable economic growth.

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