Ahead of Budget 2026, the Institute of Chartered Accountants of India (ICAI) has outlined an extensive reform agenda aimed at lowering tax litigation, simplifying compliance, and strengthening revenue efficiency. Its Pre-Budget Memorandum, submitted in November 2025, provides a comprehensive set of recommendations spanning direct taxes, international taxation, and administrative procedures.
The proposals reflect ICAI’s broader objective of rationalising India’s tax framework while supporting sustainable growth and improving ease of doing business.
ICAI’s Policy Vision for Budget 2026
According to ICAI, the current tax framework continues to suffer from procedural complexity, overlapping penalties, and avoidable litigation, which undermine taxpayer confidence and administrative efficiency. The ICAI President emphasised the institute’s role as a policy partner, stating:
“ICAI has always been at the forefront of nation building and continues to work closely with the Government as its trusted knowledge partner. Through our Pre-Budget Suggestions for 2026-27, we aim to support a tax ecosystem that promotes ease of doing business, drives sustainable growth and strengthens India’s journey towards a resilient and green economy.”
The recommendations are designed not merely as relief measures, but as structural corrections to improve long-term tax administration.
Litigation Reduction as a Central Reform Pillar
A key focus of ICAI’s memorandum is reducing tax disputes and criminalisation, which remain persistent pain points for taxpayers and administrators alike. Among its major litigation-related proposals are:
Decriminalisation of select prosecution provisions where defaults are procedural or technical
Removal of dual penalties for the same default, which often result in disproportionate consequences
Restricting return processing adjustments to arithmetical errors or prima facie incorrect claims, instead of interpretational issues
Avoiding retrospective application of notifications that define or alter treaty terms, which can create unintended tax exposure
ICAI has also proposed excluding guarantee fees from the definition of “interest” for the purposes of interest deduction limits, a change that could significantly reduce disputes in financing and group transactions.
Proposals to Simplify Compliance Burden
To improve compliance efficiency, ICAI has suggested a series of process-oriented reforms aimed at reducing friction for taxpayers:
Introduction of a year-wise electronic tax ledger to track TDS, TCS and advance tax payments, enabling seamless adjustment against final tax liability
Allowing proportionate tax deduction on payments to non-residents based on income chargeable to tax, supported by a chartered accountant’s certificate
Exempting transferees from obtaining a Tax Deduction Account Number (TAN) when paying consideration to non-resident transferors
Removal of TCS on the sale of scrap, which ICAI views as administratively inefficient
These measures are intended to reduce repetitive filings, procedural bottlenecks, and avoidable compliance costs.
Tax Base Expansion and Revenue Safeguards
On the revenue side, ICAI has proposed targeted measures to curb tax avoidance while widening the tax base, including:
Excluding Futures and Options (F&O) trading and speculative businesses from presumptive taxation schemes
Introducing an optional joint taxation scheme for married couples, aimed at rationalising family-based income reporting
Making tax audits mandatory for all profit-linked deduction provisions, to ensure claim accuracy
To further widen the tax net, ICAI has also recommended mandatory return filing by individuals owning agricultural land beyond a prescribed acreage, even if agricultural income remains exempt.
Rationalisation Under the Income-Tax Law
ICAI has called for several structural rationalisation measures, particularly under the new/default tax regime:
Increasing the surcharge threshold to reduce the tax burden on higher-income taxpayers
Allowing deductions for medical insurance premiums and maintenance of dependent persons with disabilities under the default tax regime
Clarifying the surcharge rate applicable for computing the Maximum Marginal Rate (MMR)
Providing certainty on auto-renewal of registrations for small trusts, following the extension of validity from five years to ten years under the Finance Act, 2025
Prescribing a definitive time limit for acceptance or rejection of advance ruling applications, to improve certainty in tax planning
ICAI’s Track Record in Influencing Tax Policy
ICAI has highlighted that its past representations have had a measurable impact on tax legislation. Over 100 suggestions from:
Its review of the Income-tax Act, 1961, and
Its memorandum on the Income-tax Bill, 2025
were incorporated into the Income-tax Act, 2025, which comes into force on April 1, 2026. This lends weight to expectations that at least some of the current proposals may find reflection in Budget 2026-27.
Conclusion: Reform Over Relief in Budget 2026
ICAI’s pre-Budget recommendations underscore a broader policy message: the need for consolidation, clarity and trust-based tax administration, rather than ad hoc relief measures. As Finance Minister Nirmala Sitharaman prepares to present the Union Budget on February 1, 2026, these proposals offer a blueprint for:
Lower litigation
Easier compliance
More predictable tax outcomes
A broader and more resilient tax base
If adopted, even partially, these reforms could significantly improve the efficiency and credibility of India’s direct tax system.
Source: Adapted from News18