Improving the ease of doing business has been a consistent focus of the government. Successive Budgets have announced initiatives towards policy and regulatory reforms, decriminalisation and easing compliances in various spheres including taxation.
The current financial year witnessed significant measures like structural simplification through the new Income tax law, boosting consumption through tax reliefs for individual taxpayers and GST rationalisation. Budget 2026 must continue the reforms to reduce complexity, build trust and boost investments. Three important areas that need attention in this direction are withholding taxes, disputes and customs procedures. TDS rationalisation to simplify compliance and avoid disputesTDS is important for a steady revenue flow and gathering real-time data on transactions. However, the current TDS regime needs simplification to ease compliance and avoid interpretational disputes. Currently, 37 different payments to residents attract TDS at rates varying from 0.1% to 30%. In many cases, taxpayers face cash flow blockages awaiting refunds.
While Budget 2024 reduced TDS rates from 5% to 2% on several payments, Government should further rationalise the TDS structure.
A simpler three-four rates structure with TDS on salary at slab rate, TDS on lotteries/online games etc. at maximum marginal rate and two standard rates for TDS for different categories can be considered. B2B payments subject to GST can be exempted from TDS as information for such transactions is already captured in Form 26AS/AIS.
A ‘negative list’ of payments which will not be liable to TDS may be notified. These can include payments to senior citizens, exempt income payments, and payments to banks and financial institutions, to name a few.
Pendency of tax disputes must be addressed
As at FY2024-25, over INR 26 trillion (about 8% of India’s GDP) were locked in Income tax disputes alone. While the government has been taking measures to address the problem, more focused actions are needed. Of the total income tax case-pendency, 89% is at the first appellate level. Prioritising long pending and high value cases, more frequent virtual hearings, equipping Central Technical Committee with adequate manpower and close monitoring of disposal of cases can help reduce pendency. Advance Pricing Mechanism programme has seen considerable success over the years. However, according APA Annual Report, 2024-25, over 850 cases are still pending before the APA authority.
Adopting a “framework” approach for resolving pending APA cases with low complexity/ risk, allocating additional and specialist resources, providing a special window of ‘accelerated APAs’ for old cases are some measures that can expedite APAs.
Amending the safe harbour rules to make them more attractive will also help reduce the burden on APAs. Litigations relating to Customs issues need attention too. For greater certainty, the limited validity of three years for Advance Rulings in Customs can be increased from the current three years to five years, with a provision for renewing or updating the same.
On the lines of ‘Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019’ for legacy Excise and Service Tax issues, a one-time dispute/litigation settlement scheme should be introduced under the Customs Law also.
This will be useful for the government in unlocking the blocked amounts.
Budget can set the vision for a roadmap to accelerate Customs automation. Introducing electronic revisions for customs bills of entry, automated customs duty payments and refund applications by adopting an API-based compliance will help reduce delays and compliance burden for taxpayers. The aim should be to have a paper-free Customs Administration that covers e-amendments, e-refunds, and e-adjudication, mandating complete digital correspondence between importers and Customs authorities.Improvements in the above areas will immensely help in time and cost savings for businesses and encourage voluntary compliance across segments. (Views expressed are personal.)
