Budget 2026: EY India pushes for direct tax reforms, TDS overhaul and investment

Budget expectations 2026: As the Union Budget 2026 draws closer, expectations around tax policy are sharpening, with businesses and investors seeking stability over surprise changes. According to EY India, the upcoming Budget presents a crucial opportunity for the government to reinforce India’s growth narrative by prioritising tax certainty, streamlined compliance and targeted fiscal incentives—a combination that could sustain private investment at a time of global economic volatility.

In its outlook for Budget 2026, EY argues that India has reached a point where frequent tinkering with tax rates should give way to predictable, long-term policy frameworks. With the economy positioned for its next phase of expansion, the emphasis, the firm says, should be on reducing disputes, lowering compliance costs and creating a stable environment that encourages domestic and foreign capital.

Direct tax

A key expectation centres on the smooth implementation of the New Income Tax Act, 2025, which replaced the six-decade-old law. EY India has called for detailed guidelines and FAQs to ensure a seamless transition and avoid interpretational disputes that could otherwise trigger litigation.

One of the most awaited reforms is the rationalisation of the TDS regime. Currently, nearly 37 categories of resident payments attract varying TDS rates, often leading to classification disputes and cash-flow blockages. EY has suggested that Budget 2026 should lay out a roadmap to reduce these to just three or four standard rates. It has also proposed exempting B2B payments already subject to GST from TDS, arguing that transaction data is already captured through the GST system.

To revive manufacturing investment, EY expects the government to consider reintroducing accelerated depreciation under the concessional corporate tax regime of 22% and 15%, without triggering the Minimum Alternate Tax. This, the firm believes, would improve capital efficiency and strengthen India’s ambitions under the “Make in India” programme.

On employment generation, EY has proposed increasing the monthly employee cost threshold for job-linked incentives from Rs 25,000 to Rs 1 lakh, making it more attractive for companies to expand their workforce.

International taxation is another area where clarity is being sought. In the absence of codified rules on permanent establishment and profit attribution, foreign investors often face prolonged disputes. EY expects Budget 2026 to move towards clearer legislation and is also backing an optional presumptive tax regime for foreign entities in sectors such as digital services, consultancy and turnkey projects.

The firm has further called for a revamp of Safe Harbour rules to strengthen them as a dispute-resolution tool, rationalisation of transfer pricing documentation for non-PE foreign companies, and implementation of Niti Aayog’s recommendations on decriminalising income-tax offences to improve ease of doing business.

Indirect tax

On the indirect tax front, EY is advocating reforms aimed at improving the ease of doing business and unlocking revenue stuck in litigation. One of the headline suggestions is the introduction of a one-time dispute resolution scheme under Customs law, on the lines of the successful Sabka Vishwas scheme, to settle long-pending cases.

The firm has also proposed extending the validity of Customs Advance Rulings from three to five years, a move that would provide businesses with greater certainty in tax planning. In addition, EY has urged the government to simplify the customs tariff structure, calling for sector-wise duty rationalisation and alignment with global standards to boost the competitiveness of Indian exporters.

In the GST space, expectations include allowing Input Tax Credit on essential business services currently blocked under the law and introducing centralised registration for large taxpayers to reduce administrative burden.

Setting the tone for 2026

Sameer Gupta, National Tax Leader at EY India, said Budget 2026 must strike a balance between fiscal discipline and growth ambitions. “Businesses are looking for a strong commitment to tax certainty and streamlined compliance. A predictable policy roadmap will go a long way in building confidence and catalysing private investment,” he said.

As policymakers prepare the next Budget, the message from industry advisors is clear: the next phase of tax reform should be less about headline-grabbing rate cuts and more about consistency, clarity and credibility—three pillars that could define India’s tax landscape in 2026 and beyond.