The upcoming Union Budget for 2025-26 in India is set to introduce transformative tax reforms aimed at simplifying the country’s complex tax system. With Finance Minister Nirmala Sitharaman focusing on the long-awaited Direct Tax Code (DTC), the goal is to streamline the Income Tax Act, making tax compliance more accessible and efficient for individuals and businesses alike.
Key expectations for the budget include the simplification of the residence rules, which currently differentiate between residents, non-residents, and residents but not ordinarily residents. A unified approach will help reduce confusion and improve understanding. Additionally, there is an anticipated effort to clarify the distinction between Financial Year and Assessment Year, which often perplexes taxpayers, ensuring smoother filing of Income Tax Returns.
Another major expectation is the introduction of a unified tax structure for both domestic and international companies, reducing discrepancies and enhancing compliance for multinational corporations. The proposed reforms also aim to streamline the tax system, which currently consists of 298 sections and numerous sub-sections, making it cumbersome. A simplified structure will be more user-friendly for all taxpayers.
Enhanced compliance is a key priority, as varying deadlines for different tax filings often lead to penalties due to missed dates. The new Direct Tax Code is expected to make compliance simpler, reducing the risk of errors and penalties.
Deloitte India has also proposed streamlining TDS rates, categorizing them into four main categories to reduce confusion. Additionally, clearer guidelines for taxing contingent payments in share transfer transactions are expected, helping eliminate disputes over when payments should be taxed.
Overall, the 2025-26 Budget aims to bring greater clarity, consistency, and ease to India’s tax system, supporting economic growth and improving the ease of doing business.
