Introduction
I have been watching India’s tax conversation closely as Budget 2026 approaches, and corporate India’s expectations feel both pragmatic and urgent. After the large-scale rewrite of our tax code in 2025 and the rollout of faceless systems, businesses are no longer just asking for lower rates — they want certainty, simpler administration, and incentives that actually catalyse investment and innovation. In this post I pull together the core direct-tax reforms corporate India commonly highlights, and suggest practical, actionable recommendations for policymakers.
What corporate India is asking for (key asks)
- Competitive corporate tax rate: Clear, stable headline rates that preserve competitiveness versus regional peers and avoid frequent, ad-hoc tinkering.
- Targeted tax incentives for CapEx: Time-bound, measurable investment allowances or accelerated depreciation for greenfield and strategic capital expenditure (manufacturing, semiconductors, renewable energy, clean tech).
- R&D encouragements: Restore or re-design weighted deductions / refundable credits for R&D to drive high-value, IP-generating activity in India.
- Simplification of tax administration: Strengthen e-filing, make faceless assessment more responsive, reduce manual interventions and eliminate contradictory notices.
- Dispute resolution and litigation reduction: Fast-track appellate capacity, broaden dispute resolution schemes, and operationalise timelines to clear the mounting case backlog.
- Transfer pricing clarity: Expand safe harbours, practical documentation standards, and faster Advance Pricing Agreement (APA) turnarounds.
- MAT and dividend taxation: Rationalise Minimum Alternate Tax rules and harmonise dividend taxation to avoid double taxation and cash-flow friction.
- Anti-avoidance rules (GAAR/SAAR): Clear guidance on GAAR and treaty-override tests so bona fide commercial arrangements aren’t subject to arbitrary adjustment.
- Retrospective taxation: End use of retrospective amendments as a revenue tool; provide grandfathering where legacy cases exist.
- Tax certainty and APAs: Expand and speed up the APA programme, make rollbacks and retrospective protections predictable and administrable.
Practical, actionable recommendations
- Announce a multi-year roadmap for headline corporate tax rates, linked to fiscal metrics, to give investors predictability.
- Introduce outcome-based CapEx incentives: e.g., a three-year accelerated deduction for verified new investment that creates X jobs or Y% domestic value-add.
- Replace temporary R&D weighted deductions with a permanent, simplified R&D credit (refundable for startups and loss-making firms) and a clear definition of eligible expenditures.
- Strengthen the faceless assessment framework with service-level agreements (SLAs): define timelines, an independent grievance redressal panel, and metrics published quarterly.
- Commit to a dispute-clearance target and empower a Special Resolution Desk with capacity to close older cases via structured settlements and binding mediation.
- Broaden Safe Harbour rules for common services and low-risk transactions and task the transfer pricing office to publish practical examples and standard economic adjustments.
- Amend MAT computations to exclude notional accounting adjustments that do not represent cash realisation and allow MAT credit portability on reorganisations.
- Clarify scope and process for GAAR/SAAR: publish sectoral guidance, illustrative case studies, and a mandatory pre-referral panel for aggressive enquiries.
- Commit to no new retrospective tax provisions and offer a time-bound roadmap for resolving legacy retrospective disputes through arbitration or structured settlement.
- Scale the APA programme: shorter timelines, automatic interim relief on tax demand where an APA application is pending, and broader eligibility for rollbacks.
Simplification and administration: small changes, big effect
- Rationalise TDS/TCS provisions into fewer bands and modernise crediting processes to avoid cascading compliance costs.
- Improve the e-filing portal UI, add industry-specific compliance dashboards and machine-readable refunds timelines so corporates can plan cash flows.
- Publish consolidated master circulars for TDS, transfer pricing and dispute settlement to reduce ambiguity across regional tax offices.
Potential impact on investment and growth
If Budget 2026 pairs measured headline rates with predictable, targeted incentives and a demonstrably fair administration, the payoff can be significant:
- Faster CapEx deployment: predictable tax treatment lowers hurdle rates for long‑gestation projects, especially in capital‑intensive sectors (renewables, electronics, heavy manufacturing).
- More R&D and higher value chains: stable R&D credits and IP protection incentives will attract global R&D footprints and deepen domestic skill ecosystems.
- Reduced cost of capital: lower litigation risk and clearer APA/safe‑harbour regimes will make India a lower-risk destination for foreign direct investment, reducing required returns and funding costs.
- Job creation and export competitiveness: well‑designed investment allowances and localisation incentives can accelerate manufacturing and export‑oriented projects.
Conclusion — a call to policymakers
My ask to policymakers is simple: treat Budget 2026 as a consolidation moment. The new tax law needs an equally robust administrative and dispute-resolution architecture. Prioritise predictability over headline changes, make incentives measurable and time‑bound, and ensure administration is accountable. Those three moves together will unlock investment, reduce litigation, and make Indian corporate tax policy a driver of sustainable growth.
Regards,
Hemen Parekh
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