The Union Budget 2025-26, set to be presented on February 1, 2025, is expected to focus on private capital expenditure (capex), tax simplification, and personal income tax relief for lower-income groups, aimed at stimulating demand, EY India has said.
In its Budget expectation note, EY highlighted that over ₹31 lakh crore remains tied up in income tax disputes as of 2023-24, underlining the need to clear Commissioner of Income Tax (Appeals) backlogs and strengthen alternate dispute resolution mechanisms, such as advance pricing agreements and safe harbours.
“While a full review of the direct tax code may take time, we might see initial steps towards its implementation in this Budget. Reducing personal income tax for lower-income groups could provide relief and drive demand,” said Sameer Gupta, National Tax Leader at EY India.
EY expects strategic reforms to simplify the tax system, reduce litigation, and improve taxpayer services. The note also emphasised the importance of incentivising private sector investment, reducing the fiscal deficit, and introducing targeted reforms to foster business innovation.
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Last year, the government rationalised capital gains taxes by streamlining holding periods and rates. EY expects further measures to address anomalies, such as reducing the holding period for capital assets in slump sales from 36 months to 24 months and for unlisted shares in IPO offers for sale from 24 months to 12 months.
EY also recommended prioritising fiscal consolidation, aiming to lower the fiscal deficit to 4.5% of GDP in FY26 and reduce the debt to GDP ratio, which currently stands at 54.4%, significantly above the 40% target under the FRBM framework.
To achieve a medium-term real GDP growth target of 6.5% or higher, EY suggested boosting the gross fixed capital formation (GFCF) rate to 34% through increased capital expenditure, improved efficiency, and higher state-level investments.
Stimulating private sector investment through progressive interest rate reductions and fast-tracking employment schemes to support urban demand were also highlighted as critical measures for sustaining economic momentum in FY26.
