EY Calls For Simplified Tax System And Lower Personal I-T In Budget 2025

EY stressed the urgent need to address the backlog at the Commissioner of Income Tax and enhance alternative dispute resolution mechanisms, such as advance pricing agreements and safe harbours

EY highlighted that expectations for the Budget are centred around a series of strategic reforms aimed at driving economic growth

Source : ABPLIVE AI

The upcoming Budget is expected to prioritise boosting private capital expenditure, simplifying the tax system, and reducing personal income tax, particularly for lower-income groups, to stimulate demand, according to a report from EY India. The Union Budget for 2025-26 is set to be presented in Parliament on February 1.

In its Budget expectations note, EY India highlighted that over Rs 31 lakh crore is currently tied up in income tax disputes as of 2023-24. It stressed the urgent need to address the backlog at the Commissioner of Income Tax (Appeals) and enhance alternative dispute resolution mechanisms, such as advance pricing agreements and safe harbours.

"While a full comprehensive review of the direct tax code may take time, we might see some initial steps towards its implementation in this Budget. I also hope for a reduction in personal income tax, particularly for the lower-income groups, to provide relief and stimulate demand," said Sameer Gupta, National Tax Leader, EY India.

EY highlighted that expectations for the Budget are centred around a series of strategic reforms aimed at driving economic growth. With a focus on fiscal consolidation, tax system simplification, and investment-led growth, the Budget is expected to establish a strong foundation for long-term economic development.

EY anticipates major reforms to streamline the tax system, improve taxpayer services, reduce litigation, and boost tax compliance. The government is already working on simplifying Income Tax laws and should adopt a consultative approach by inviting public comments on the draft proposals, EY added.

"Key areas of focus are likely to include enhancing public spending, reducing the fiscal deficit, incentivising private sector investment, and introducing targeted tax reforms that foster business innovation," EY said.

In the previous Budget, the government streamlined the capital gains tax structure by adjusting asset holding periods and tax rates. EY suggests that the government may address some remaining inconsistencies to further complete the rationalisation of capital gains taxation.

For example, EY proposes reducing the holding period for capital assets, such as business undertakings in slump sales, from 36 months to 24 months. Similarly, the holding period for unlisted shares in IPO offer-for-sale (OFS) could be cut from 2 years to 1 year, bringing them in line with listed securities.

Gupta also stressed that simplifying tax compliance is critical, especially for businesses, particularly SMEs. To ensure sustainable growth in FY26, the government should prioritise reducing the fiscal deficit to 4.5 per cent of GDP while addressing the debt-to-GDP ratio, which currently stands at 54.4 per cent, well above the Fiscal Responsibility and Budget Management (FRBM) target of 40 per cent.

A medium-term real GDP growth target of 6.5 per cent or higher would require increasing the aggregate investment rate (GFCF) to 34 per cent of GDP. This can be achieved through higher government capital expenditure, improved capital efficiency, and encouraging state-level investment.

To boost private sector investment, EY recommends progressively reducing interest rates. Additionally, the acceleration of targeted employment schemes should be prioritised to boost urban demand and support economic momentum in FY26.