The current year has been very important in India’s tax reforms journey. Emphasis was laid on simplifying the structure through the new Income Tax Act, 2025, which made it easier to pay taxes and provided relief to common taxpayers, thereby promoting consumption. Now Budget 2026 will have to take this reform process forward, so that the tax system becomes simpler, trust increases, rules are clarified and investment gets a boost. Some important issues are like this.
It is necessary to simplify TDS
At present the rules related to TDS are quite complicated. There are 37 different types of payments, on which TDS rates range from 0.1% to 30%. This leads to disputes over determining the category of payment and interpretation of rules. Many times, companies’ money gets stuck in the refund process and the government also has to pay unnecessary interest. In the Finance Act of 2024, TDS on many payments was reduced from 5% to 2%. Now there should be a roadmap to further simplify the TDS structure in Budget 2026. It is possible that a three-four rate system may be created.
TDS on salary as per slab
- Highest rates on lotteries and online gaming
- Two standard rates for remaining categories
B2B payments covered under GST can be kept out of TDS as their information is already recorded in Form 26AS/AIS. Also, some payments can be negatively listed, such as payments to senior citizens, tax-free income, and payments to banks or financial institutions.
The irregularities in the rules on share buyback should be removed
Currently, the entire amount received in share buyback is treated as dividend and taxed. In many cases, especially when the buyback is from share premium or proceeds from any other share issue, this amounts to unfair taxation of the capital amount. In other countries, buybacks are generally considered capital gains. In India too, the budget should correct this problem. Where the company’s profits are not being distributed in buyback, it should not be considered as dividend. Even in buybacks made from profits, there should be an allowance to reduce the cost of shares.
Merger should be encouraged in service sector
Under the current rules, the facility to carry forward loss and depreciation after merger is available only to certain sectors. Many service sectors like retail, trading are outside this, due to which it becomes difficult for companies in these sectors to connect with each other. The government should provide this facility to all sectors by removing sector restrictions and with necessary security conditions. This will increase the competition of companies and strengthen the business.
imaginary taxes on real deals removed
In case of share transfer, if the transaction price is less than the fair value determined by tax rules, then notional tax is imposed on both the buyer and the seller. This rule was made to prevent unfair practices, but it also affects honest deals. It should be made clear in Budget 2026 that honest and genuine deals should be kept out of this scope. Also, it should be clear that if there is already a binding agreement between the buyer and the seller, then the value should be considered as of that date and not the date of share transfer.
Trust and clear rules are most important for investment
Tax clarity and confidence is very important for investors and businessmen. The government has made a good start in simplifying the tax law. Now the next step should be to remove those problems which give rise to unnecessary disputes and lawsuits. Especially at the appeal level, it is necessary to dispose of the pending cases expeditiously. This will open up the government’s income and provide relief to taxpayers, i.e. a win-win deal for everyone.