Corporate Pulse: Excitement builds for Union Budget 2025

The Union Budget is a significant annual event that typically garners widespread attention and anticipation. Not surprisingly, this time too Corporate India is abuzz with expectations for favorable tax reforms. These hopes will be pitted against some unique economic challenges this year: a sliding rupee, global uncertainties, stressed equity markets, slow urban demand and a slump in second-quarter growth. However, given this gloomy backdrop, India’s corporate sector remains hopeful that the government will revive the growth trajectory and continue the momentum, especially by boosting manufacturing and investments to help increase jobs.

Some expectations pertaining to corporate tax from Union Budget 2025-26 are as follows:

1. Re-introduction of Concessional Tax Rate

Initially introduced under Section 115BAB, the concessional tax rate of 15% was applicable to companies incorporated on or after October 1, 2019, and commencing production before March 31, 2024. With the expiration of this benefit, there is a strong push to extend it further to encourage new investments and boost domestic manufacturing.

Extending this rate for manufacturing companies starting operations after April 1, 2024, would continue to drive growth and sustain industrial momentum. Additionally, with the rise of Global Capability Centers (GCCs), now at 1,700 and growing, there is a proposal to offer a similar 15% tax rate to GCCs. This move aims to foster their expansion and job creation, leveraging India's position as a global hub for such centers. By providing a competitive tax environment, the government can attract more GCCs, driving economic growth and employment opportunities in the sector.

2. Fostering Innovation through New Production-Linked Incentives for R&D

To foster innovation, it is recommended to introduce a new production-linked incentives for Research and Development (R&D) activities. These could include additional deductions for R&D expenditures based on specific criteria, such as increased turnover, employment generation, or capital investment.

3. India’s stance on Pillar 2

India is among the 140 countries to have signed the OECD’s Global Anti-Base Erosion Model Rules for Pillar Two, aimed at preventing multinational companies from avoiding taxes by shifting profits to low-tax jurisdictions. These rules target multinational companies with a global turnover of over €750 million. While 30 countries implemented the Pillar Two rules in 2024 and another 30 are expected to do so in 2025, India has yet to outline a clear roadmap for their implementation. Consequently, there is significant anticipation that the upcoming Budget will address this issue and provide clarity on India's approach.

4. Continue with simplification of tax regime

The government has made a commendable start towards simplifying the tax compliance process by reducing the Tax Deducted at Source (TDS) rates on several payments from 5% to 2% through the Finance (No.2) Act 2024. A more unified approach, which converges these rates into a simple two or three-tier structure, would further significantly reduce classification disputes and prevent the blockage of working capital in the industry. Also, the practice of imposing TDS/TCS on transactions that are subject to GST, can be discontinued, since the relevant information is already available through GST filings.

5. Revamp to dispute resolution

The Indian tax system is grappling with unprecedented levels of litigation. At the beginning of FY 2024 approximately 6 lakh appeals were pending for disposal at different levels with the total disputed amount estimated at approximately INR 14 lakh crore. A recent Deloitte survey on Indian direct tax policy revealed that most respondents indicated that the time and cost spent resolving appeals was the most vexed issue for companies in India. To resolve the above issue, few measures need to be taken to revamp the entire dispute resolution mechanism, rationalizing scrutiny process by focusing on qualitative assessment, consolidation of common tax issue (industry wise or assessee wise), providing a strict timeline for appellate authority specially first appellate authority where the number of appeals are highest or expanding the ambit of dispute resolution panel (DRPs) to include domestic cases, fast track resolution for easy matters etc.

6. Direct Tax code

As announced in the Budget 2024, it is expected that in the upcoming budget the Direct Tax Code will be unveiled. It is an initiative aimed at modernizing India's tax framework by replacing the archaic Income Tax Act of 1961.The direct tax code will be crucial step towards modernizing India’s tax landscape, making it more efficient and equitable for all taxpayers.

All stakeholders are eagerly awaiting Union Budget 2025-26, not just for its economic measures but also for the promised overhaul of the six-decade-old Income Tax Act of 1961. The industry is keen to see whether the government will implement these changes comprehensively or in a piecemeal fashion, making this a true 'Bull in the Run' moment for India’s income tax history.

The author is Partner, Deloitte Touche Tohmatsu India LLP. Jash Davda and Harshita Jain have added inputs