 |
|
The Union Budget 2025-26 is on the horizon, and EY India, a prominent global consulting firm, has put forth a comprehensive set of proposals aimed at significantly altering the Indian tax landscape. Their recommendations center around easing the financial burden on taxpayers, particularly those in the middle-income bracket, and simplifying the often-complex tax system. The core of their argument revolves around the belief that these reforms would not only provide much-needed relief to individuals but also stimulate economic growth by boosting consumer spending and investment. This win-win scenario, they argue, makes these reforms a crucial step towards a more prosperous and equitable India.
A key element of EY India's proposals is the substantial increase in the basic income tax exemption limit under the new tax regime. Currently standing at Rs 3 lakh, they advocate for a jump to Rs 5 lakh. This, coupled with a reduction in overall tax rates, would directly translate into increased disposable income for a large segment of the population. The rationale is simple: more money in the hands of consumers translates to increased demand, which in turn fuels economic activity and job creation. The firm also recommends streamlining the TDS (Tax Deduction at Source) system, which often presents a significant compliance burden for salaried individuals. Their suggestions include grouping TDS rates into fewer categories (3-4) for easier understanding and removing TDS on certain items entirely to reduce administrative complexity. Further easing the compliance burden, EY India proposes deferring TDS on Provident Fund (PF) interest exceeding Rs 2.5 lakh until the withdrawal stage.
Beyond individual tax relief, EY India addresses the significant issue of tax disputes and the resulting capital drain. With over Rs 31 trillion tied up in income tax litigation as of 2023-24, the urgency of addressing this problem is undeniable. The proposals put forth aim to make 'safe harbor' options more appealing, thereby encouraging voluntary compliance and reducing the number of disputes. Furthermore, the firm recommends extending tax exemptions to sovereign wealth and pension funds, simplifying the process for these vital players in the Indian economy. Another significant proposal involves removing the cap on using house property losses to offset other income, offering greater flexibility to taxpayers. Recognizing regional disparities, EY India also suggests expanding the 50% House Rent Allowance (HRA) exemption to Tier-2 cities like Hyderabad, Pune, Bengaluru, and Ahmedabad, mirroring the benefit currently enjoyed by residents of major metropolitan areas. The complexity of capital gains tax is also addressed with suggestions to shorten holding periods for certain assets and clarify inconsistencies in the taxation of infrastructure investments and IPOs.
The rapid growth of cryptocurrencies and NFTs necessitates a clear and consistent taxation framework, and EY India's proposals acknowledge this pressing need. They highlight the critical importance of providing clear guidelines on taxing these virtual digital assets (VDAs), particularly addressing how losses are treated. The absence of such clarity currently creates ambiguity and uncertainty for investors, potentially hindering the growth of this burgeoning sector. The firm's overall vision focuses on reducing the tax burden, making compliance easier, and resolving existing disputes. These interconnected proposals are presented not simply as isolated measures but as a comprehensive strategy for promoting economic growth and creating a more equitable and efficient tax system. The success of these recommendations would undoubtedly depend on their careful implementation and consideration of potential unintended consequences. However, the potential benefits – from increased economic activity to a more satisfied and compliant taxpayer base – are considerable.
The impact of EY India's proposals on the Budget 2025 remains to be seen. However, the sheer scope and detail of their recommendations highlight the importance of addressing these issues. The focus on simplification, dispute resolution, and taxpayer relief strongly suggests a shift towards a more taxpayer-friendly approach. Whether these proposals are adopted fully, partially, or not at all will significantly shape the economic landscape of the coming year. The level of political will and the capacity of the administrative machinery to implement such widespread changes will be crucial factors in determining the final outcome. Regardless of the specific details of the upcoming budget, the conversation around tax reform sparked by EY India's proposals marks a significant step in fostering a more efficient, equitable, and ultimately, more prosperous Indian economy.
Source: Budget 2025 expectations: Rs 5 lakh exemption and simpler taxes, says EY