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UNION BUDGET 2025-26: TAX REFORMS WISHLIST FOR EASE OF DOING BUSINESS

UNION BUDGET 2025
UNION BUDGET 2025

The upcoming Union Budget 2025-26 is set to usher in a new era of tax simplicity in the country’s taxation system, by streamlining tax filing processes, making tax filing easier for citizens, reducing compliance burdens and expanding the tax base.

Comprehensive Review of the Income Tax Act

In pursuance of the announcement in the Union Budget 2024-25 by Ms Nirmala Sitharaman, Minister for Finance and Corporate Affairs, Government of India, the Central Board of Direct Taxes (CBDT) has formed an internal committee to oversee a comprehensive review of the Income Tax Act, 1961.

Thus, a series of major reforms to the income tax system is in the works, focused on simplifying the language of the Income Tax Act, reducing litigation and compliance, and removing redundant or obsolete provisions to improve the overall ease of doing business.

Here, I have articulated a few suggestions that the Industry hopes to get implemented in the upcoming Union Budget, as a part of the Income Tax Act review exercise.

Simplification of Income Tax Act and Rules

Most sections in the Income Tax Act and the Rules have explanations, provisos, notifications and circulars, making it difficult to comprehend. The Government should try to simplify the structure of The Income Tax Act and Rules to make it easy to read, understand and decode, by merging the multifarious explanations, provisos, notifications and circulars in the provisions.

Rationalisation of TDS Rates and Categories

Currently, there are 32 sections dealing with different types of payments to residents where the TDS rates vary from 0.1 per cent to 30 per cent. In some sections, there are varying rates of TDS depending upon the status of payees/nature of payments. The wide variety of TDS rates and thresholds creates complexity and confusion for the taxpayers, increases the compliance burden and gives rise to characterisation disputes. The Government may consider laying down a roadmap for reducing the disparity in TDS rates by having only two or three categories of payments and a small ‘negative list’ of payments which will not be liable to TDS.

Reduction of Litigation and Compliance Burden

A large volume of litigation is concentrated around a few issues and sections of the Income Tax Act. The volume of such litigation can be reduced by adequately amending the provisions or by clarifying the legal provisions through circulars.

Internationally, most assessments are done for a block of two to three years, which avoids repetitive litigation on the same matter. India too should consider a mechanism to pick up assessments for all open years together. Appeals must be heard together without the requirement to file separate appeal memos and paperwork. An alternative method of reducing the repetitive administrative efforts on Transfer Pricing (TP) and non-TP assessments is to delink the two assessments and make them independent of each other.

Discontinuation of TDS/TCS Certificates

With increasing reliance on Form 26AS/ Annual Information Statement (AIS) by the deductees for the claim of TDS /TCS credit and information being auto-updated in the returns of income, such certificates are not much of relevance. The issue of TDS and TCS certificates unnecessarily increases the administrative compliance burden and cost to the assessee. Now all TDS/TCS related information is readily available under Form 26AS/ AIS. For ease of doing business, the requirement to issue TDS Certificates should be discontinued, except for salary, non-residents to enable them to claim FTC in their home country and in cases where PAN is not available.

Easing Transfer Pricing Compliance for Foreign Companies

Even if a foreign company is exempted from filing an income tax return, it is required to undertake transfer pricing compliances if there is an international transaction during the year. Such compliances like Form 3CEB, 3CEAB, 3CEAC and master file should not be required for such foreign companies, which are not mandatorily required to file income tax returns for the year.

Similarly, there are various other forms/ compliances which are no longer relevant or have become obsolete, given the changing business environment. The Government may like to consider removing such redundant compliance requirements, to iron out the difficulties for Industry in complying with taxation.

Such reforms are bound to improve the ease of doing business, expand the tax base, promote foreign investments and give a thrust to economic growth in the country.

This article was written by Koushik Chatterjee, Chairman, CII National Committee on Taxation & Executive Director and CFO, Tata Steel Limited in Policy Watch January 2025, Vol 13, Issue 1

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