As deliberations around the Union Budget 2026-27 intensify, tax simplification has emerged as a central theme in expert commentary. Industry veterans and former tax administrators believe the upcoming Budget may prioritise structural clarity and reduced complexity over fresh tax giveaways, particularly in light of constrained fiscal space.
Speaking at the CNBC-TV18 Budget Vision 2026 event during the “Expectations vs Reality” panel, Vivek Johri, Former Chairman of the Central Board of Indirect Taxes and Customs (CBIC), and Akhilesh Ranjan, Former Member of the Central Board of Direct Taxes (CBDT), outlined key areas where reform, rather than relief, could define Budget 2026.
Limited Headroom for Fresh Income Tax Giveaways
Addressing expectations around personal income tax relief, Akhilesh Ranjan highlighted that Budget 2025 had already delivered substantial concessions, including income tax relief up to ₹12 lakh. According to him, this has significantly narrowed the government’s fiscal room for additional tax giveaways in Budget 2026.
He pointed out that the earlier relief measures led to a revenue shortfall of nearly ₹1 lakh crore, which was consciously factored into budget estimates. However, emerging data for the current financial year suggests that personal income tax collections may fall short by an additional ₹75,000 crore or more.
Given this backdrop, Ranjan noted that while further broad-based tax relief appears unlikely, the absence of giveaways does not preclude meaningful reform.
Case for a Single Income Tax Regime
One of the most significant reform proposals discussed was the merger of the two existing personal income tax regimes into a single framework. Ranjan argued that the coexistence of the old and new regimes continues to create distortions, complexity, and compliance friction. According to him, the time may be ripe for the government to:
- Move decisively towards one income tax regime
- Incorporate select, widely used incentives, such as House Rent Allowance (HRA) and pension-related benefits, within the new regime
- Retain simplicity while addressing key taxpayer sensitivities
Such a move, he suggested, would represent a major structural simplification of India’s personal income tax system, aligning it with global best practices that favour fewer exemptions and clearer rate structures.
Labour Codes Unlikely to Trigger Income Tax Changes
On the question of whether the implementation of the new labour codes would necessitate amendments to the Income Tax Act, Ranjan was unequivocal in his assessment.
He stated that no direct harmonisation between labour codes and income tax law is required, as the economic and compliance impacts of labour reforms extend beyond payroll taxation alone. Issues such as hiring practices, workforce restructuring, and compliance costs are already embedded within existing tax and regulatory frameworks.
Accordingly, he does not expect any targeted income tax interventions specifically driven by the rollout of labour codes in Budget 2026.
Customs Duty Rationalisation: Scope for Rate Compression
Turning to indirect taxes, Vivek Johri indicated that customs duty rationalisation is one area where tangible action could be expected in the upcoming Budget.
He observed that although customs duty rates have already been reduced from 21 slabs in FY 2022-23 to around eight slabs currently, the structure remains overly complex. From a tax policy standpoint, a higher number of rates increases:
- Arbitrage opportunities
- Classification disputes
- Litigation and compliance costs
Johri suggested that Budget 2026 could compress the number of customs duty rates further—from eight to four. He also noted that the depreciation of the rupee provides the government with some cushion, enabling rate moderation without severely impacting domestic competitiveness.
Gradual Approach to Further Simplification
While acknowledging that some policy thinkers advocate an even more streamlined customs duty structure, Johri cautioned that any deep compression would need to be phased. Abrupt changes could disrupt supply chains and domestic manufacturing incentives.
A gradual, predictable approach would allow industries to adjust while preserving policy credibility.
Protecting Sunrise Sectors Through Glide Paths
Johri also underscored the importance of strategic protection for sunrise sectors, particularly in manufacturing. He suggested that the government could announce clear glide paths, temporary enhanced customs duties for three to four years, followed by a calibrated reduction. Sectors that may merit such treatment include:
- Defence manufacturing
- Drones and advanced mobility
- Electronic hardware and components
These sectors have already demonstrated success under temporary tariff protection combined with long-term visibility, reinforcing the case for targeted, time-bound support rather than permanent protectionism.
What Budget 2026 Signals for Tax Policy
Taken together, expert views indicate that Budget 2026-27 is likely to be reform-oriented rather than relief-driven. The emphasis appears to be on:
- Simplifying the personal income tax structure
- Reducing distortions caused by multiple regimes and rate slabs
- Rationalising customs duties to lower disputes and improve efficiency
- Maintaining fiscal discipline while supporting strategic sectors
Rather than incremental giveaways, Budget 2026 may seek to lay the groundwork for a cleaner, more predictable tax system, balancing revenue imperatives with long-term ease of compliance.
Source: Adapted from CNBC-TV18