Budget 2026 expectations: EY bats for TDS reforms, smoother implementation of new Income Tax Act and more

With just weeks left until the presentation of the budget for the upcoming financial year, people await major financial announcements, and expectations are running high, particularly for any tax-related reforms that may be on the cards.

Finance Minister Nirmala Sitharaman is reportedly set to present the Union Budget 2026 on Sunday, 1 February, while the Budget Session of the Parliament will begin on 28 January 2026 and continue till 2 April 2026, Union Minister Kiren Rijiju informed on X.

Amid rising hopes, EY India has highlighted the critical role of the upcoming Union Budget 2026 in shaping India’s economic trajectory, which is likely to focus on sustaining robust growth, enhancing tax certainty, and driving sector-specific investments.

EY expects the direct tax framework to undergo critical changes aimed at enhancing certainty and compliance. Here's what to look for —

Tax deducted at source (TDS) rationalisation

What is the concern with TDS?

EY flagged that with 37 different types of payments to residents, where TDS rates range from 0.1% to 30%, TDS provisions become a complex area prone to disputes over categorisation and interpretation. Often, the industry faces cash flow blockages awaiting refunds, and the government incurs unnecessary interest costs on these refunds.

What must Budget 2026 cater to?

The firm advised that Budget 2026 should establish a clear roadmap for streamlining the TDS rate structure with no more than three or four rates. B2B payments subject to GST could be exempt from TDS, as information about such transactions is already captured in Form 26AS/AIS.

Smooth implementation of Income Tax Act

The New Income Tax Act 2025 should be implemented along with detailed guidelines and FAQs to minimise confusion during the shift from the Income Tax Act, 1961. This is essential to prevent litigation and facilitate a smooth transition for taxpayers, EY noted.

What must corporates look for?

Accelerated depreciation

EY suggests that the government should consider reintroducing accelerated depreciation as a targeted fiscal incentive to boost investment and stimulate growth in the manufacturing sector. This should be included within the existing concessional corporate tax regime of 22%/15%, so that higher depreciation does not trigger Minimum Alternate Tax (MAT) for companies.

Amid global economic uncertainties and India's goal to become a manufacturing hub through initiatives like "Make in India," reinstating this benefit could offer crucial support to domestic manufacturers. It would not only boost competitiveness and productivity but also attract both local and international investment, creating employment and fostering long-term economic growth.

Clarity on international tax

According to EY, ensuring tax certainty for foreign investors is essential. Without specific rules on the determination of permanent establishment (PE) and profit attribution, these issues often lead to litigation. Clear and codified rules will help to clearly understand taxation.

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