India Inc awaits key reforms and growth boosters in Budget 2025

Here are some key tax expectations from India Inc.

As the Central Government prepares to unveil its annual budget, the corporate sector is eagerly awaiting reforms and policies that will drive economic growth, improve the ease of doing business, and ensure fiscal prudence. With global uncertainties and the government’s vision of making India a ‘Vikist Bharat by 2047’, businesses hope the upcoming budget will address challenges and lay out a roadmap for a resilient economy. Here are key tax expectations from India Inc as Finance Minister Nirmala Sitharaman prepares to present the budget:

Reintroduction and Expansion of Concessional Tax Rate: With a continued focus on ‘Make in India’, the government should reintroduce the concessional tax rate under Section 115BAB for new domestic manufacturing companies. Expanding the definition of ‘new manufacturing or production’ to include substantial expansions by existing units would further boost investment and job creation. Additionally, the government should increase the coverage to all critical infrastructure, clean energy, and sustainable development projects, whether or not they qualify as manufacturing.

Job Creation Incentives: To support employment, particularly for blue-collar jobs and entry-level positions, the government should raise the maximum salary cap under Section 80JJAA from INR 25,000 to INR 50,000 per month and peg it to inflation. The current limit, set in 2016 when the average salary was INR 19,000, no longer serves its purpose, especially with the average salary now around INR 33,000.

Ease of Business and Tax Compliance: The demand for simplification of the tax system and the ease of doing business remains a key issue. While a total revamp of tax provisions is being considered, the following interim measures are recommended:

# TDS Structure or Rate Revamp: India’s TDS provisions are complex, with 33 sections dealing with rates from 0.1% to 30%, leading to avoidable litigation. India Inc expects the simplification of TDS provisions into five broad categories. The government should also realign TDS rates with current tax rates. High TDS rates often lead to refund claims, increasing compliance burden and costing the government in interest payouts. According to Mr. J.B. Mohapatra (ex-CBDT Chairman), refunds account for 16% of gross collections, with 53% of these linked to TDS and regular tax disputes for 2023-24.

# Ease/Automate Nil/Lower Withholding Process: The process for issuing nil/low withholding certificates should be automated, with manual issuance only in cases of tax defaults or special markings by the assessing officer. The system should also issue one unique certificate for all customers and sections, rather than multiple certificates for each, aligning with the government’s insight project.

# CSR and Sustainable Development: To address environmental concerns, corporates should be allowed to utilise CSR funds for the renovation or replacement of cleaner, more sustainable equipment or plants for up to five years. The government should modify the bar under Section 37 accordingly or permit CSR funds to be used as interest-free loans for this purpose. CSR funds could also be extended as loans to employees for replacing old vehicles with greener or more fuel-efficient models.

# Revamping Chapter XI-A for Dispute Resolution: The government faces constraints in reducing tax disputes at the High Court and above levels. However, issues at the ITAT, BAR, and CIT(A) levels remain substantial, with 68% of tax disputes stuck at the CIT(A) level (INR 14.2 lakh crore). A revamp of Chapter XI-A, aimed at avoiding repetitive appeals, should encourage both taxpayers and tax administrators to resolve disputes more efficiently. This could include clearer guidelines on refund issuance and demand collection until the dispute is resolved.

# Refund Issuance: Delays in issuing refunds, particularly for TDS disputes, are mainly attributable to the tax department. With advancements in automation and digitalisation, the government should enable automatic refund releases based on appellate orders, with a 30–45-day window for assessing officers to object and withhold refunds. Additionally, refunds should be allowed to be transferred to foreign bank accounts to prevent inconvenience for foreign companies and non-residents.

# Remove Restrictions on TDS Credit: The current rules that restrict TDS credit to party-wise income reconciliation often lead to denial of credit or disputes. Since TDS represents taxes paid on behalf of taxpayers, credit should not be limited to party-wise or section-wise reconciliation. The assessing officer can reconcile income, but such restrictions create unnecessary complexity and increase the burden on taxpayers and tax administrators.

# Compliance Deadlines: The overlap of compliance deadlines with major holidays creates undue stress. The government should adjust due dates or offer flexibility during such periods to ease the compliance load and prevent last-minute extensions.

Personal Taxation and Deductions: To further stimulate consumer spending and economic growth, the government should rationalise the personal tax regime. One issue individuals face is the loss of deductions under the Section 54 series due to delays in possession handover by builders, often caused by factors such as the invocation of GRAP. The government should consider extending the construction period for deductions from three to seven years. Additionally, to encourage individuals to replace old vehicles with cleaner, more fuel-efficient options, the government should provide an incentive or deduction based on the vehicle’s value.

-- With inputs from Rohan Jain, Manager – Tax, EY India.

(The author, Aseem Mowar is a Tax Partner in EY India.)

Views are personal and do not represent the stand of this publication.