With the Union Budget 2026 just weeks away, anticipation is building across India for significant financial announcements, with a particular focus on potential tax reforms. Finance Minister Nirmala Sitharaman is scheduled to present the budget on Sunday, 1 February 2026. The Budget Session of Parliament is set to run from 28 January to 2 April 2026, as announced by Union Minister Kiren Rijiju on social media platform X.
EY's Blueprint for a Growth-Oriented Budget
Amid rising expectations, the consultancy firm EY India has outlined the critical role the upcoming budget will play in shaping the nation's economic path. The firm anticipates a focus on sustaining robust growth, enhancing tax certainty, and driving investments in specific sectors. A central part of their recommendations involves a major overhaul of the direct tax framework to improve clarity and compliance.
Streamlining the Complex TDS Structure
EY has identified the current Tax Deducted at Source (TDS) regime as a key area needing simplification. The firm points out that with 37 different types of payments to residents attracting TDS rates ranging from 0.1% to 30%, the system is overly complex. This complexity often leads to disputes over categorisation and interpretation.
Furthermore, businesses frequently face cash flow issues while waiting for refunds, and the government bears unnecessary interest costs on these refunds. To address this, EY advises that Budget 2026 should establish a clear roadmap to streamline the TDS rate structure to no more than three or four rates.
An important suggestion is to exempt Business-to-Business (B2B) payments that are already subject to Goods and Services Tax (GST) from TDS. Since information on these transactions is already captured in Form 26AS or the Annual Information Statement (AIS), this move could reduce redundancy and ease compliance burdens.
Ensuring a Smooth Transition to the New Tax Regime
Another critical area highlighted by EY is the implementation of the New Income Tax Act 2025. The consultancy stresses that the rollout must be accompanied by detailed guidelines and comprehensive Frequently Asked Questions (FAQs). This preparation is deemed essential to minimise confusion during the transition from the decades-old Income Tax Act, 1961, and to prevent a wave of potential litigation.
A smooth shift is crucial for providing clarity to all taxpayers and ensuring the new law achieves its intended objectives without administrative hiccups.
Key Incentives and Clarity for Corporates
EY's recommendations extend to specific measures aimed at boosting corporate investment and providing certainty to international players.
Reintroducing Accelerated Depreciation: To stimulate growth in the manufacturing sector and support initiatives like Make in India, EY suggests the government consider bringing back accelerated depreciation as a targeted fiscal incentive. This measure should be integrated within the existing concessional corporate tax rates of 22% and 15%, ensuring that the higher depreciation claims do not trigger Minimum Alternate Tax (MAT) liabilities for companies.
In the face of global economic uncertainties, reinstating this benefit could provide crucial support to domestic manufacturers, enhancing their competitiveness, attracting investment, and fostering job creation and long-term economic growth.
Clarity on International Taxation: For foreign investors, EY underscores the importance of tax certainty. The absence of specific, codified rules on the determination of a Permanent Establishment (PE) and profit attribution often leads to prolonged litigation. Clear rules in these areas are vital for helping international businesses understand their tax obligations in India with greater confidence.
The recommendations presented are based on the analysis and views of experts at EY India, as highlighted in their recent commentary on the upcoming budget.
