GST, income tax, labor laws: India's biggest reforms in 2025
What's the story
The National Democratic Alliance (NDA) government, led by Prime Minister Narendra Modi, has introduced a series of major reforms in 2025. These changes are aimed at strengthening the Indian economy amid global uncertainties. The country's economy grew by an impressive 8.2% in Q2 of this year, exceeding expectations. This growth has been fueled by policy reforms across various sectors, including taxation and labor laws.
Tax reform
GST 2.0: A major overhaul
One of the biggest changes was the introduction of GST 2.0 in September, a complete revamp of the Goods and Services Tax (GST) system. The earlier four-rate structure was simplified into a two-rate system of 5% and 18%, with some items put under a 40% slab. This simplification has reduced compliance complexity and lowered costs for consumers while boosting consumption during festive seasons like Diwali.
Tax relief
Income tax reform and labor laws
The Union Budget also brought in income tax relief for middle-class individuals earning up to ₹12 lakh annually. The old income tax regime, which was full of amendments and sections, has been replaced by a new Income Tax Act with fewer sections and words. Labor reforms were another major focus area with 29 laws being merged into four labor codes focusing on wages, industrial relations, social security among others.
Business reforms
Revisions in MSME definition and SHANTI Bill
The definition of micro, small, and medium enterprises (MSMEs) was revised to allow higher investment and turnover limits. For instance, the investment limit for micro enterprises was increased from ₹1 crore to ₹2.5 crore while that for medium enterprises was raised from ₹50 crore to ₹125 crore. The SHANTI Bill or Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India, was also passed by Parliament ending state monopoly in nuclear energy.
Legal changes
Jan Vishwas law and FDI reform
The Jan Vishwas law decriminalized over 200 minor offenses and repealed several obsolete laws. The government is working on a third phase of this initiative to decriminalize more provisions. In 2025, foreign direct investment (FDI) reforms were also introduced with a new insurance law allowing 100% FDI in insurance companies. This move is expected to draw foreign capital and boost competition in the sector.
Social reforms
Employment guarantee law and legal reform
The Employment Guarantee Law, also known as the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission Act Gramin, has increased guaranteed workdays for rural households from 100 to 125. This move is aimed at improving rural infrastructure and livelihoods. Legal reforms were also introduced through the Bharatiya Nyaya Sanhita replacing the Indian Penal Code of 1860 with provisions to tackle cyber terrorism, organized crime among others.