Budget 2026: Simpler TDS, faster dispute resolution top middle class, businesses wishlists this year

Every Union Budget puts personal taxes in the spotlight, but none watch it more closely than middle-class taxpayers. Beyond tax relief, the expectation this year is also for a simpler and less stressful experience of filing income tax returns. As Budget 2026 approaches, conversations around tax policy are gathering pace, with industry and business groups calling for a system that is easier to navigate, more predictable in its outcomes and far less prone to disputes.

Dinesh Kanabar, Chairman and CEO of Dhruva Advisors India, told Business Today that this year’s budget is unlikely to bring sweeping changes to tax law itself. Instead, he believes the real opportunity lies in improving how the system is administered.

Income Tax Act 2025

The Union Budget to be presented on February 1, 2026, comes at a unique moment. The new Income Tax Act, 2025, is set to take effect from April 1, following an extensive consultative process involving a parliamentary committee and wide stakeholder engagement. In this context, major amendments to direct tax law would be unexpected. Any tinkering now could dilute the purpose of introducing a clean-slate legislation.

What needs attention, Kanabar argues, is not the framework of the law but how it is implemented. Despite reforms such as faceless assessments and digital interfaces, tax disputes continue to rise and concerns around administrative conduct remain.

Simplifying compliance

Kanabar adds that one of the most urgent areas for reform is tax deduction at source (TDS). Although TDS is merely a collection mechanism, the current framework involves multiple rates across numerous sections, often triggering disputes over classification and procedure even when there is no revenue loss.

Rationalising TDS into two or three broad rate categories --- one for salaries, one uniform rate for most payments, and a higher rate for exceptional windfall income --- could sharply reduce compliance burdens and litigation. For large taxpayers, this would also lower the cost of managing complex withholding obligations, without materially affecting government revenues.

High-tech manufacturing and R&D

India has articulated ambitions to become a global hub for artificial intelligence, semiconductors and advanced electronics. Yet, unlike many competing economies, it offers limited tax incentives for research and development.

Reintroducing carefully designed R&D incentives could strengthen India’s innovation ecosystem, particularly as global mobility constraints prompt skilled professionals to consider returning home. A tax framework that supports research and advanced manufacturing could help channel this talent into productive domestic opportunities.

Tax litigation

Tax litigation continues to be one of the deepest fault lines in India’s tax system. At the current rate of case disposal, clearing the existing backlog could take five to six years, creating prolonged strain for both the government and taxpayers. The exchequer is forced to wait years to realise its dues beyond the standard 20% pre-deposit, while businesses carry lingering contingent liabilities that weigh on cash flows, balance sheets and long-term planning—even in matters that may eventually be decided in their favour.

India’s track record with dispute resolution schemes, however, offers a way forward. Past initiatives, including those launched in 2020 and expanded in 2024, drew strong participation and helped unlock revenue while easing litigation. Building on this experience, there is now a compelling case for a comprehensive settlement framework covering both direct and indirect taxes, especially customs, where disputes have piled up over decades. A thoughtfully designed scheme could unclog appellate forums, restore certainty for taxpayers and deliver quicker fiscal gains for the government.

Fairer tax administration

Finally, the budget must address taxpayers' sentiments. Concerns over indiscriminate notices, routine reopening of assessments and lack of accountability continue to dent confidence. While faceless systems have reduced some friction, they have also raised questions about proportionality and responsiveness.

What is needed, experts say, is not more legislation but a more facilitative approach to administration—one that treats taxpayers as partners in nation-building and prioritises certainty, fairness and predictability.

In essence, Budget 2026 is not expected to rewrite tax policy. Its real impact could come from making the system work better through easier compliance, smarter incentives, faster dispute resolution and a more humane tax administration. For middle-class taxpayers and businesses alike, that shift may matter far more than any headline tax cut.