India's ambitious economic growth targets require a tax system that is simpler, more predictable, and better aligned with contemporary business operations. While the digital transformation of GST and Customs procedures has significantly improved the tax landscape, companies still encounter numerous operational hurdles that impede activity, lock up working capital, and increase compliance expenses. These challenges directly impact the nation's ease of doing business rankings and overall economic momentum.
Building on GST Council Progress
The 56th GST Council meeting recently addressed several persistent issues, marking substantial advancement. Union Budget 2026 now presents a pivotal opportunity to capitalize on this progress and establish a tax ecosystem that is faster, more uniform, and easier for enterprises to manage. The upcoming budget must focus on creating a framework that supports business agility and reduces administrative burdens.
Enhancing the Input Tax Credit System
A primary expectation from the forthcoming budget is a more adaptable and business-oriented input tax credit mechanism. Companies have consistently advocated that credits representing taxes legitimately paid and utilized in business activities should be readily accessible or refundable. Two specific demands remain urgent:
- Refunds for input services and capital goods under inverted duty structures.
- Reevaluation of blocked credits, particularly those associated with genuine business necessities such as employee facilities including cab services and insurance, along with leasing agreements.
Facilitating smoother credit flow across various GST registrations would also release significant liquidity for businesses, enhancing their financial flexibility.
Expanding Export Service Recognition
The GST Council's recent decision to classify intermediary services as exports, thereby exempting them from GST, is a positive development. The industry now anticipates its formal implementation through the budget process. Businesses also seek similar clarity for research and development as well as testing services, which currently incur an 18% GST because place-of-performance regulations hinder their classification as exports. A consistent and internationally aligned export definition would strengthen India's competitiveness in high-value service sectors.
Streamlining Compliance and Minimizing Litigation
Compliance complexity continues to be a major worry, with expectations that the multiplicity of proceedings will be resolved. A unified, centralized audit and faceless assessment system, akin to the efficient model under the previous service tax regime, would provide pan-India businesses with a single point of interaction. This approach would reduce repetitive examinations and minimize conflicting interpretations across different states.
Large taxpayers would especially gain from a centralized single point of contact strategy through:
- Large Taxpayer Units,
- Enhanced Centre–State coordination, and
- Elimination of parallel or contradictory proceedings.
A uniform, risk-based audit framework would further improve consistency and limit unnecessary scrutiny. Equally crucial is a more measured enforcement methodology that acts decisively against evasion but avoids punitive actions like asset seizures or frequent goods detention in cases involving interpretational differences or procedural oversights. A clearer distinction between deliberate violations and good-faith positions would significantly restore business confidence.
Supporting MSMEs with Threshold Adjustments
For India's smallest enterprises, the existing GST registration thresholds—₹20 lakh for services and ₹40 lakh for goods—no longer mirror today's cost structures. Near-decade-high inflation has drawn many micro-businesses into the GST net potentially earlier than intended. Raising these thresholds to reflect current economic realities would preserve working capital and bolster MSME sustainability.
Clearing Customs Backlogs and Enhancing Predictability
On the Customs front, businesses continue to experience extended timelines in dispute resolution, with legacy cases persisting for years and delaying investment decisions. A time-bound settlement mechanism, similar to earlier dispute-resolution schemes, would help clear the backlog and allow both industry and the department to concentrate on priority matters.
Companies are also pursuing greater certainty through longer-validity advance rulings and simpler renewal processes, ensuring long-term projects are not disrupted by tax disputes merely due to time lapses.
Operational friction remains a daily challenge at borders. Even after goods clearance, companies often face manual procedures to pay differential duties or correct documents for various reasons including price variations and corrections. Permitting digital payments and online amendments, and ensuring such payments qualify for GST credit, would reduce compliance efforts and minimize cash-flow disruptions. Cross-border businesses additionally seek clearer, time-bound guidelines regarding Special Valuation Branch proceedings. While scrutiny of related-party pricing is necessary, inconsistent practices often create uncertainty for global supply chains. Predictable timelines and uniform standards are essential for India to position itself as a dependable global hub.
Revising the SEZ Duty Framework
Special Economic Zone units aiming to sell in the domestic market face a structural disadvantage, as duties are imposed without fully acknowledging that these units frequently use domestic inputs. Aligning duty calculations to reflect only the imported content, and/or extending select benefits available under free trade agreements, would improve capacity utilization and offer SEZs a more equitable playing field compared to foreign suppliers.
Creating a Future-Ready Indirect Tax System
Budget 2026 offers an opportunity not merely for incremental adjustments but for substantial reform that strengthens India's indirect tax architecture. The foundation established by GST and recent digitalization efforts is solid. What businesses now require is a system that is simpler, more consistent, and aligned with the demands of a rapidly expanding economy. If executed effectively, indirect tax reform can serve as a catalyst not only for smoother compliance but also for accelerating the country's growth trajectory.
