2026 Comprehensive Overhaul of Indian Tax Law: Practical Response Strategies for Korean Companies

Let's look into the revised Indian tax laws of 2026

-From the New Income Tax Act to GST 2.0: Crucial Changes and Risk Management- The Government of India has structurally reorganized its tax system over the past three years (2024–2026). In particular, the "New Income Tax Act, 2025," which comes into full effect in 2026, is evaluated as a massive reform that completely replaces the old law that had been maintained for over 60 years since its enactment in 1961. The core of this overhaul is not simply about tax cuts or tax hikes. It is a complete transition toward "simplification" and "digital-based control." For Korean companies operating in India, this is not just an increase in the workload of the accounting department; it is a structural shift that requires redesigning their actual operational methods, including ERP (Enterprise Resource Planning) structures, transaction contract methods, supply chain management, and internal control systems. 1. Core Direction of India's Tax Reform: Simplification + Digital Control The direction of this tax reform can be summarized into two main pillars: ① Simplification of the Legal Structure The old Income Tax Act (1961) system was boldly overhauled to eliminate unnecessary overlapping provisions and reduce the total number of clauses. In particular, complex tax terminology and period calculation systems, which previously confused practitioners, have been clearly integrated. Key Example of Terminology Integration: Past: The system was dualized into Previous Year (the year in which income was earned) and Assessment Year (the year in which tax is calculated and levied), causing widespread confusion. Present: To align with global standards, these have been integrated into a single concept called Tax Year , drastically increasing intuitive understanding. ​ ② Strengthening Digital-Based Automated Verification System As the e-filing (electronic filing) and e-invoice (electronic tax invoice) systems become highly sophisticated, tax data submitted by companies is cross-checked in real time through the Income Tax Department's system. Practical Implications: While the tax filing process itself has been simplified, the system is now designed to instantly and automatically detect any data discrepancies or errors. 2. 4 Key Amendments Companies Must Pay Attention To ① Full Application of the 「Income Tax Act, 2025」 The new tax law, which will be fully applied from April 2026 , has clearly restructured the existing 800+ clauses down to approximately 500. While taxpayers' legal understanding is expected to improve significantly, caution is required during the initial phase of implementation as temporary interpretive uncertainties may exist until the tax authorities issue specific rulings or court precedents accumulate. ​ ② Reorganization of the Capital Gains Tax System The tax system levied on gains from asset sales has been streamlined. LTCG (Long-Term Capital Gains): A flat tax rate of approximately 12.5% is applied to long-held assets, simplifying calculations. STCG (Short-Term Capital Gains): The tax rate for certain short-term investment asset items has been increased from 15% to 20% . Caveat: Since the Indexation system (which adjusted the acquisition cost of long-term assets by reflecting inflation rates) has been largely abolished, the actual tax burden on long-term investments may increase for certain asset classes despite the simplified calculation. ​ ③ GST 2.0 (Goods and Services Tax Reform) The complex structure of GST, India's equivalent to Value Added Tax (VAT), is being standardized. Past: The tax brackets were overly segmented (5%, 12%, 18%, 28%, etc.), leading to frequent disputes regarding item classification. Present: The system is moving toward a structurally simplified framework focused on: a 5% rate for essentials, a standard 18% rate, and high-rate taxation (up to around 40% ) for luxury goods and specific regulated items. This is expected to reduce time-consuming classification disputes with tax authorities. ​ ④ Reorganization of TDS / TCS System The withholding tax system, which is a highly distinct feature of Indian taxation, has become even tighter. TDS (Tax Deducted at Source): A system where the party paying for a transaction deducts tax in advance and remits it to the government. TCS (Tax Collected at Source): A system where the seller collects additional tax from the buyer at the time of sale and remits it. Amendment Direction: Although the thresholds for micro-transactions have been somewhat adjusted to reflect reality, the overall policy of securing taxes in advance across all business transactions to prevent tax evasion and increase real-time traceability of transaction data has become even more robust. 3. 5 Practical Risks Korean Companies Must Manage These are the areas where disputes occur most frequently due to the differences in legal sentiment between Korea and India when operating local subsidiaries. ① GST Input Tax Credit (ITC) Joint Liability Risk ITC (Input Tax Credit): A system that allows a com