Indira Gandhi’s 97.5% Tax vs Budget 2025-26 Reforms

Aakhir Tak – In Shorts

1. Finance Minister Nirmala Sitharaman announced zero tax for incomes up to ₹12 lakh in Budget 2025-26.
2. In 1973-74, Indira Gandhi’s government imposed a 97.5% income tax rate.
3. Indira viewed taxation as a tool for income equality, but it led to widespread tax evasion.
4. The high tax rates were gradually reduced in subsequent budgets to curb economic damage.
5. The current tax policy balances revenue generation while supporting middle-class spending.

Aakhir Tak – In Depth

Tax Relief in Budget 2025-26 and Its Historical Comparison

On February 1, 2025, Finance Minister Nirmala Sitharaman introduced significant income tax relief. Under the new system, individuals earning up to ₹12 lakh will pay no tax. With standard deductions, this limit effectively rises to ₹12.75 lakh.

Amidst this tax relief, a look back at India’s highest-ever income tax rate—97.5% under Indira Gandhi’s government—offers an interesting comparison.

How Did the 97.5% Tax Come Into Effect?

In the 1970s, India followed socialist economic policies. Prime Minister Indira Gandhi viewed taxation as a way to reduce income disparity.

In 1970-71, the highest tax bracket stood at 93.5%. In the 1973-74 budget, Finance Minister Yashwantrao Chavan increased the surcharge, pushing the top rate to an astounding 97.5%. This meant that for every ₹100 earned beyond ₹2 lakh, taxpayers kept just ₹6.50.

High Taxes Led to Massive Tax Evasion

Such extreme taxation discouraged wealth generation and led to rampant tax evasion. High-income individuals sought ways to underreport income, significantly reducing government revenue.

Tax System Reform and Today’s Scenario

By 1974-75, the government realized the policy’s flaws and reduced the top tax rate to 77%. In 1976-77, it was further lowered to 66%.
In 1985-86, India undertook a major tax reform, reducing tax brackets and capping the highest rate at 50%.
The 1992-93 and 1997-98 budgets simplified the tax system further, introducing the three-tier structure of 10%, 20%, and 30% that exists today.

With the 2025 budget, Sitharaman’s reforms aim to provide relief to middle-class taxpayers, boost spending, and support economic growth.

Aakhir Tak – Key Takeaways to Remember

• Budget 2025-26 exempts incomes up to ₹12 lakh from tax.
• In 1973-74, Indira Gandhi’s government imposed a 97.5% tax rate.
• High taxation led to mass tax evasion, forcing policy changes.
• By the 1990s, reforms simplified taxation, introducing a three-tier system.
• Today’s tax relief increases disposable income, boosting economic growth.

Aakhir Tak Editor-in-Chief

See Full Bio