I have an unfashionable habit: I read budget documents before reading the political reactions to them. It saves time. The document usually contains trade-offs, tables and limiting conditions; the reaction usually contains one adjective repeated at television volume. That difference was especially useful after the Union Budget changed the new income-tax regime so that an ordinary taxpayer with income up to ₹12 lakh could have no tax liability through the rebate. For salaried taxpayers, the standard deduction raised the effective figure to ₹12.75 lakh. The government’s own Budget explanation of the relief stated the limits clearly, including the caveat for income taxed at special rates.
I regard this as one of the Modi government’s more consequential middle-class reforms, precisely because it is not spectacular. No ribbon is cut when a payroll deduction shrinks. There is no photogenic concrete structure. There is simply more discretion left with a household that knows its own priorities better than a finance ministry does. A couple may repay a home loan, replace an ageing scooter, buy insurance or build an emergency fund. The state does not need to approve the choice. That is a modest but recognisably right-of-centre policy instinct: collect less from a broad salaried group, simplify the route by which relief is obtained, and trust citizens to allocate the difference.
Why the simplification matters
Critics treated the announcement as if the only question were whether every Indian benefits equally. That is not a serious test of tax policy. Most Indians do not pay personal income tax because their incomes fall outside the net; a personal-tax reform will therefore directly affect taxpayers. The proper questions are whether it improves incentives, reduces compliance games and leaves the fiscal position manageable. On those tests, the new-regime shift is defensible. The official Budget summary paired the tax changes with a 4.4% fiscal-deficit target for 2025-26. One can debate the assumptions, but relief was not announced in a document that had abandoned consolidation.
The old regime trained salaried Indians to perform an annual ritual of financial cosplay. People bought products in March because a deduction existed, not because the product suited them. Employers collected declarations and proofs. Taxpayers preserved rent receipts, insurance statements and investment certificates, while an industry of badly designed “tax-saving” products fed on deadline panic. Deductions can encourage useful behaviour, but decades of layering had turned the system into a maze whose greatest rewards often went to those with advisers, flexible compensation structures and enough surplus cash to lock away.
The new regime’s attraction is not merely a lower bill. It is legibility. A citizen should be able to estimate liability without an archaeological expedition through exemptions. Congress-era nostalgia tends to romanticise the old architecture as targeted social policy. I remember it rather differently: an accretion of concessions that privileged organised salaried employment, rewarded lobbying and hid high effective complexity behind nominal rates. The Modi government deserves credit for moving the centre of gravity toward lower rates and fewer deductions, even if the coexistence of two regimes shows that the transition remains politically cautious.
The opposition’s weak complaint
The standard opposition response was to ask about unemployment, rural distress or indirect taxes, as though a finance minister may address only one problem in a Budget. Those issues deserve policy, but their existence does not make personal-tax simplification fraudulent. This argumentative habit is now routine. If the government builds infrastructure, the critic asks about welfare. If it expands welfare, the critic asks about jobs. If it cuts tax, the critic asks why the poorest did not receive an income-tax cut. The conclusion is fixed before the policy appears.
There is also a revealing reluctance to concede that the BJP has become adept at combining welfare delivery with aspirational economics. The older caricature offered by the left imagined a government serving only large business while distracting everyone else with culture. It became harder to sustain after years of direct-benefit transfers, household amenities, public infrastructure and digital payment rails. Tax relief for the lower and middle reaches of the formal-income ladder complicates it further. The beneficiary is neither a tycoon nor a passive recipient. She is a teacher, technician, junior manager or self-employed professional who wants the government to work and then get out of the way.
I do not claim that the reform is perfect. The rebate produces a threshold that taxpayers and advisers must understand carefully, especially where marginal relief and special-rate income are involved. Constant changes also complicate long-term planning. The government should publish far better worked examples, prevent payroll confusion and resist the temptation to tinker every February. Simplicity is not achieved by calling a regime simple; it is achieved when a person can predict the result several years ahead.
What should come next
The next stage should be consolidation. India should move toward one comprehensible personal-tax system, with a small number of defensible deductions rather than two full regimes running indefinitely. Health insurance, retirement saving and charitable giving raise legitimate policy questions, but every concession should carry a burden of proof. If ministers cannot explain why the state should favour a transaction over ordinary household saving, the concession should go. Tax administration must also become less frightening for honest small taxpayers. Faceless systems reduced some discretion, yet automated notices and delayed corrections can turn minor mismatches into months of anxiety.
The government must also confront indirect-tax complexity. Giving a salaried household relief while tolerating needless GST classification disputes would leave the reform incomplete. Personal income tax is only one part of the citizen’s encounter with the revenue state. The same principles—fewer rates, predictable enforcement, fast refunds and intelligible communication—should guide the rest. A pro-government column should say this plainly: the rebate earns credit, but that credit raises expectations.
Still, perspective matters. For years, Indian politics assumed that the middle class could be praised in speeches and squeezed in schedules because it was organised enough to comply and too dispersed to bargain. The ₹12-lakh rebate altered that presumption. It recognised that a growing formal economy needs taxpayers who regard compliance as a reasonable civic exchange rather than punishment for appearing on the books. That psychological effect cannot be entered neatly in a budget table, but it matters.
I therefore reject the lazy description of the measure as an electoral sweetener. Every popular policy has political consequences; that does not erase its economic design. A government is entitled to seek support by doing something useful and sustainable. Indeed, that is preferable to seeking support through nostalgia, entitlement or slogans about redistribution whose arithmetic is never supplied. The tax change gave households room, simplified the system and preserved a stated path of fiscal consolidation. Congress could have offered a cleaner alternative. Instead, much of its ecosystem complained that the relief was insufficient, misdirected or suspiciously popular.
My verdict is straightforward. The rebate was a reform with a political dividend, not a bribe wearing a spreadsheet. The Modi government should defend it in those terms and complete the transition it began. Lower personal-tax friction, wider formalisation and firmer compliance can reinforce one another. But only if New Delhi now resists the bureaucratic instinct to decorate a simpler regime with new exceptions. The best compliment the finance minister can pay taxpayers next is not another dramatic announcement. It is to leave a clear system alone long enough for citizens to trust it.
