New Delhi: EY India anticipates that the budget should seek to stimulate lower middle income group demand through greater private capex along with tax simplification and reduction of personal income taxes. This Union Budget is set to be presented in the parliament on the first of February for the year of 2025-26.

Such expectations come as EY India cites around Rs 31 lakh crore in disputes for income taxes as of 2023-24, signifying the compounding need to clear the Commissioner for Income Tax Appeals backlog and aid the growth of alternative options such as advance pricing agreements and safe harbors, within this time frame scope of engagement.

"While the entire direct tax code stays subject to full review, it is forecasted that a few measures or recommendations shall be included within this budget which may be the stepping stone to the codes implementation. Such recommendations are in regard to the reduction of personal income taxes particularly for low income groups, drived mainly for relief recieving purposes and demand stimulation,” expressed Sameer Gupta, National Tax Leader, EY India.

According to what both the budget estimates and EY expect, this set of strategic reforms will take the economy forward. Building on investment-led growth, simplification of the tax system and fiscal consolidation, the Budget aims to ensure sustainable economic growth going forward.

Some reforms that aim to enhance taxpayer services will also include simplification of the tax system, reduction of litigation as well as boosting tax compliance which EY predicts will happen. Working towards making the Income-tax laws more user-friendly is a step the government has aimed to achieve. There is a need for a consultative approach to this and invite public comments on the draft proposals to formulate this, according to EY.

"Among its recommendations, the Council is likely to recommend measures aimed at increasing the amount of public spending, curtailing the fiscal deficit, encouraging the nature of investments made by the private sector and applying tax measures that promote innovation within business,” EY said.

“Most recently, in the past Budget, the government had restructured the capital gains regime by reviewing the holding period of the assets against the prescribed tax rates. Furthermore the government is also likely to be addressing certain unintended distortions that have arisen to complement the rationalisation of capital gains," EY noted.

As an example, the duration of holding capital assets should be lowered from 36 months to 24 months, business undertakings in slump sales from 2 years to 1year while investors should be able to IPO offer for sale unlisted shares after 1 year instead of the previous 2 year. This will then put them at par with the listed securities and have broader appeal to investors. Gupta further said to address the challenges SMEs face in business it has become imperative to streamline tax compliance requirements. Looking into FY26, for the economy to expand sustainably debt to GDP ratio of 54.4percent which is quite distant from the fiscal responsibility and budget management (FRBM) goal of 40 percent will need to be reduced alongside the fiscal deficit to 4.5percent of GDP. To boost medium term real GDP growth to 6.5 and over aggregate investment is expected to be greater than 34 percent over a period. As a tonic to private sector participations slides in interest rates should be gradual. There is also an urgent need to scale up on focused employment programmes as a way of increasing urban demand till FY26 when the economy is seemingly set to pick up steam, commented EY.