Budget 2026: Why stability in direct taxes may matter more than fresh reforms; expert explains

Union Budget 2026 comes at a point when India’s direct tax system is already showing the benefits of reforms rolled out over the past decade. Measures such as corporate tax rationalisation, faceless assessment, and technology-driven compliance have expanded the tax base, reduced discretion, and improved efficiency, while keeping India competitive as an investment destination.

According to Nilesh Choudhary, founder and CEO of Aikyam Capital Group, the most effective signal Budget 2026 can send is one of predictability in direct taxes, combined with targeted administrative upgrades. Rather than reopening core structures, stability would allow existing reforms to compound. “A stable direct tax framework is not ‘doing nothing’,” he said. “It is a conscious policy choice that reduces dispute risk, improves revenue quality, and lets the system mature.”

The compliance momentum generated by digitisation and enforcement reforms has been visible in recent data. For Assessment Year 2024–25, more than 7.28 crore income tax returns were filed by July 31, 2024, compared with 6.77 crore filed by the same date a year earlier. Tax collections have also remained buoyant. In its early-year update for FY 2024–25, the government reported gross direct tax collections rising 22.19% year-on-year, with net collections up 20.99%, alongside significant refunds. While these figures are intra-year rather than full-year numbers, they underline the system’s ability to absorb reforms and deliver incremental gains.

A continuity signal in Budget 2026 could help preserve this momentum. Frequent changes in tax slabs, surcharges, deductions or thresholds tend to raise compliance costs, disrupt payroll systems and increase interpretational disputes. By contrast, stability allows taxpayers, intermediaries and the tax department to internalise the rules and comply with lower friction.

Choudhary pointed out that tax policy influences investment primarily through expectations. “Even when headline rates stay the same, repeated redesign of the tax architecture can increase the ‘policy risk premium’, pushing up the cost of capital,” he said. This is particularly relevant as the government’s growth strategy relies on sustained public capital expenditure and the crowding-in of private investment. For FY 2025–26, capital expenditure has been pegged at Rs 11.21 lakh crore, or 3.1% of GDP. A predictable direct tax environment makes it easier for private investors to commit to long-gestation projects alongside this public push.

On the household side, private consumption remains the largest component of GDP. Private Final Consumption Expenditure accounted for an estimated 55.8% of GDP in FY 2023–24, down from 58.1% in FY 2021–22. Stability in personal tax structures supports medium-term household planning and helps sustain consumption without repeated policy resets.

If Budget 2026 seeks to be reformist without being disruptive, the next frontier lies in administration and dispute reduction. Parliamentary data shows that as of December 31, 2024, over 71,000 direct tax disputes were pending across courts and tribunals, with nearly Rs 11.84 lakh crore locked in litigation. Choudhary said this is where policy can deliver outsized gains—through faster dispute resolution, better risk triage, cleaner drafting of rules and consistent departmental positions—strengthening trust, protecting revenue buoyancy and reinforcing India’s investment narrative.