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The upcoming union budget 2025-26 should focus on giving personal tax relief to common taxpayers by raising the basic exemption limit in the new tax regime from Rs 3 lakhs to Rs5 lakhs and reducing tax rates, suggests global consulting and professional services firm Ernst & Young India (EY India).
EY India also asks for deferring tax deduction at source (TDS) on PF interest rate (above 2.5 lakhs) until the withdrawal stage to reduce compliance burden. In the previous budget TDS rate rationalization was undertaken to a certain extent. To further simplify the entire gamut of withholding tax provisions, the TDS rate structure could be divided into 3-4 broad categories with lower rates and a negative list. Sameer Gupta, National Tax Leader, EY India, said "While a full comprehensive review of the direct tax code may take time, we might see some initial steps toward 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." EY India also asks for the ESOPs tax deferment benefit to be extended to all employers and allow tax payment at the sale stage. EY anticipates significant reforms to simplify the tax system and improve taxpayer services, reduce litigation, and enhance tax compliance. Measures should be announced to reduce the pendency of tax disputes and avoid further disputes on a priority basis. In this regard, other dispute prevention options like safe harbours should be made more attractive. As of 2023-24, more than Rs 31 trillion was locked in Income Tax litigation, amounting to 9.6 per cent of India's GDP for the year. The cap on the set-off of house property losses against other heads should be removed. In Tier-2 cities like Hyderabad, Pune, Bengaluru, and Ahmedabad the house rent allowance (HRA) exemption should be given at 50 per cent, it will provide tax parity. Currently, only four metro cities get a 50 per cent HRA exemption. The budget should also give clarity and clear guidelines for the taxation of cryptocurrency and non-fungible tokens (NFT), including the treatment of virtual digital asset (VDA) losses. In the last Budget, the government had rationalised the capital gains structure in terms of the holding period of assets and tax rates. The government should further address some of the unintended anomalies to give more clarity on the rationalisation of capital gains. For instance, the holding period for capital assets, such as business undertakings in slump sales may be reduced from 36 months to 24 months and unlisted shares in IPO Offer for Sale (OFS) from 2 years to 1 year, aligning them with listed securities. Exemptions for sovereign wealth and pension funds investing in infrastructure should be clarified to preserve their eligibility for long-term capital gains benefits. (ANI)
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