NEW DELHI: Taxpayers and businesses are eagerly waiting for new reforms in the upcoming Union budget that will propel India’s economic trajectory. All eyes are on the key announcements and the government’s forward-looking economic guidance for PM Modi’s third tenure.
EY India
recently suggested that the
budget 2025
should focus on increasing capex, reducing the debt-to-GDP ratio, raising
tax exemptions
, and many other measures.
The firm anticipated significant reforms aimed at simplifying the tax system, enhancing
taxpayer services
, reducing litigation, and improving compliance along with steps to tackle the lingering backlog of tax disputes. It also suggested making dispute prevention options, such as safe harbours, more appealing to avoid future conflicts.
At present, more than Rs 31 trillion is stuck in unresolved income tax cases. This amounts for 9.6 per cent of India’s GDP for 2023-24, weighing down the taxation system.
It emphasised on fiscal consolidation, tax system simplification, and investment-driven growth, to foster a solid foundation for sustained economic development.
Here are some of the suggestions according to Ernst & Young India:
Tax exemption limit
Raising the basic exemption limit in the new tax regime, from Rs 3 lakh to Rs 5 lakh while reducing tax rates to provide relief to common taxpayers.
Deferring TDS
Deferring the tax deduction at source (TDS) on provident fund (PF) interest (above Rs 2.5 lakh) until the withdrawal stage to ease compliance burdens. Also, the TDS rate structure could be streamlined into 3-4 broad categories with reduced rates and a clearly defined negative list.
Additional reforms include extending ESOP tax deferment benefits to all employers.
Property cap and HRA
Removing the cap on the set-off of house property losses against other income sources.
Regarding HRA, the company suggested giving a 50 per cent exemption in tier-2 cities like Hyderabad, Pune, Bengaluru, and Ahmedabad, to provide tax parity. Currently, only four metro cities get a 50 per cent HRA exemption.
Digital assets
Providing more specific guidelines on the taxation of digital assets such as cryptocurrency and non-fungible tokens (NFT). It should also provide a provision for treating losses in the digital assets.
Addressing capital gain structure
Streamlining the capital gains framework to address certain unintended discrepancies and provide greater clarity in the rationalisation process.
For example, the holding period for capital assets like business undertakings in slump sales could be reduced from 36 months to 24 months. Similarly, the holding period for unlisted shares in IPO Offer for Sale (OFS) could be shortened from 2 years to 1 year, aligning them with the treatment of listed securities.
Tax for businesses
Reduce the complexity of tax compliance for businesses, especially for those falling in the small and medium category.
Achieving sustainable economic growth
In a bid to attain sustainable growth in 2025-26, it is a priority to reduce the fiscal deficit to 4.5 per cent of GDP along with minimising debt to GDP ratio, which stands at 54.4 per cent, much higher than FTBM’s target of 40.
Increasing capex
Achieving a GDP target of 6.5 per cent or higher is possible only by increasing the government’s total capital expenditure, improving capital efficiency and promoting states to increase their investment spending.
Lowered interest rates
Progressive reduction in interest rates is crucial to lure investments in the private sector.
Implementing employment schemes
Specifically tailored employment schemes would help in rapid upliftment of urban demand while supporting economic momentum in 2025-2026.
Sameer Gupta, national tax leader at EY India, said “While a full comprehensive review of the direct tax code may take time, we might see some initial steps toward its implementation in this Budget. I also hope for a reduction in personal income tax, particularly for the lower-income groups, to provide relief and stimulate demand.”
He further added that over the last two terms, government has made significant progress in reforms.
“The focus now should be on accelerating and executing the key policies announced in recent years,” he noted.
The Budget 2025-2026 is scheduled to be tabled on February 1, 2025, which will mark finance minister Nirmala Sitharaman’s 8th time announcing it. The finmin has already conducted several pre-budget consultation meetings with experts, state officials, industry leaders and economists.
The formal exercise to prepare for the annual budget already commenced weeks ago.
