Experts Call for Major Tax Reforms Ahead of Union Budget FY25-26

New Delhi: With the Union Budget FY25-26 around the corner, expectations from various sectors have gained momentum. Experts from across industries have shared their insights into what could be game-changing measures to drive economic growth and provide relief to taxpayers.

Personal Income Tax Reforms

Several experts anticipate significant reforms in personal income taxation. Viral Bhatt, Founder of Money Mantra, expects the government to address the concerns of middle-income earners by revising tax slabs and increasing the basic exemption limit in the new tax regime.

He highlighted, “With inflation impacting household spending, revisions in tax brackets or higher exemptions are likely.”

Tejaswi Dudeja, Associate at SKV Law Offices, shares similar sentiments. He predicts an increase in the basic exemption limit from Rs 3,00,000 to Rs 5,00,000, along with higher standard deductions, which would boost disposable income for middle-class taxpayers.

In addition, he calls for raising the Section 80C deduction limit from Rs 1,50,000 to Rs 2,00,000, stating that “such a move would accommodate the growing financial planning needs of taxpayers and stimulate savings.”

Housing and Real Estate Support

Experts are optimistic about reforms in the real estate sector. Kunal Savani, Partner at Cyril Amarchand Mangaldas, foresees an increase in home loan deductions under Section 24(b) from Rs 2,00,000 to Rs 3,00,000.

He also anticipates targeted benefits in the House Rent Allowance (HRA) segment. “Provisions specifically aimed at the real estate segment would contribute to its continued growth,” he stated.

Ritika Nayyar, Partner at Singhania & Co., echoed these sentiments, calling for interest deductions on housing loans to be uncoupled from Section 80C and capped independently at Rs 3,00,000.

“This measure would encourage homeownership while providing a much-needed boost to the struggling real estate sector,” she noted.

Corporate Tax Incentives

In the corporate tax domain, the focus is on fostering innovation and easing compliance burdens. Viral Bhatt suggested further cuts in corporate tax rates to attract foreign direct investment (FDI) and incentivize research and development (R&D).

Similarly, SR Patnaik, Head of Taxation at Cyril Amarchand Mangaldas, anticipates expanded deductions for workforce employment and sector-specific benefits for start-ups.

Tejaswi Dudeja also highlighted the potential extension of the 15% concessional tax rate under Section 115BAB for new domestic manufacturing companies.

“This step would bolster investments and create jobs, aligning with the government’s economic development goals,” she stated.

Tax Simplification and Litigation Reduction

A recurring theme among experts is the need for tax simplification. SR Patnaik expects measures to reduce tax litigations, including granting revenue authorities greater discretion in deciding cases to pursue.

“Simplifying the tax regime and reducing unnecessary compliances would enhance ease of doing business in India,” he remarked.

On a similar note, Dinesh Jotwani, Co-Managing Partner of Jotwani Associates, highlighted the importance of aligning legal and financial policies.

He stated, “Simplification of tax structures, rationalisation of GST rates, and enhanced clarity in compliance requirements would bolster investor confidence and foster innovation.”

ESOPs and Employee Benefits

Employee Stock Ownership Plans (ESOPs) emerged as a major point of discussion. Both SR Patnaik and Ritika Nayyar emphasised the need to revise the taxation of ESOPs.

Nayyar explained, “Currently, ESOPs are taxed doubly, discouraging their use as a retention tool. Taxing ESOPs only at the capital gains stage would incentivise their adoption.”

Emerging Needs: Childcare, Remote Work and Custom Regulations

Ankit Jain, Partner at Ved Jain & Associates, brought attention to contemporary issues like childcare and remote work. He advocated for childcare expense deductions and tax relief for work-from-home setups.

“Tax deductions for setting up home offices, including ergonomic furniture and technology upgrades, would address the realities of a hybrid work environment,” he suggested.

In addition, customs regulations could see an overhaul. Experts expect the introduction of an amnesty scheme for customs violations, similar to schemes in other tax domains, to reduce pending litigation cases.

Tourism and Foreign Remittances

Jain also flagged concerns in the tourism sector, advocating for a reduction in the Tax Collected at Source (TCS) rate on foreign remittances from 20 per cent to 1 per cent.

“High TCS rates incentivise tax avoidance and could lead to money laundering. A rationalised rate would serve the sector better,” he explained.

Healthcare and Insurance

With rising healthcare costs, experts see the need for higher deductions under Section 80D. Dudeja proposed increasing limits to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens while extending benefits to the new tax regime.

“These changes would not only provide relief to taxpayers but also encourage broader insurance penetration,” she stated.

The upcoming Union Budget FY 2025-2026 offers an opportunity for the government to address critical economic and social challenges while fostering a balanced approach to growth and development.

By focusing on reforms in taxation, real estate, healthcare, and corporate incentives, the budget could serve as a catalyst for achieving long-term economic resilience. With the right measures in place, it can pave the way for a more inclusive and progressive financial framework for the nation.