India Union Budget 2025-26

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Rationalisation, targeting greater simplification and clarity in tax laws

The upcoming Union Budget is anticipated to focus on enhancing investment in manufacturing, improving infrastructure, boosting employment opportunities, aiding the agricultural sector, providing a stable, dispute-free tax ecosystem and fostering innovation and entrepreneurship. The government is expected to build upon the tax reforms announced in the previous budget. The prior budget included various amendments to rationalise provisions related to capital gains tax and Tax Deducted at Source (TDS). It is anticipated that this budget is likely to continue the trend of rationalisation, targeting greater simplification and clarity in tax laws.

What we foresee is a pressing need for measures to enhance the efficiency of existing tax dispute resolution mechanism. In the last budget, the Direct Tax Vivad se Vishwas Scheme, 2024, was introduced for resolving tax disputes and reducing litigation. More initiatives in this direction can be expected to further enhance the reduction in Income tax pending litigations.

To promote the ‘Aatmanirbhar Bharat’ campaign, one can expect introduction of certain targeted incentives aimed at boosting investments in Research and Development (R&D), as well as the manufacturing sector. Such measures are crucial in enhancing India’s competitiveness and fostering innovation.

The finance minister announced a comprehensive review of the Income-tax Act, 1961, in the previous budget. Recommendations from various stakeholders have since been submitted to the government. It will be interesting to observe whether some of these most pressing and actionable suggestions are incorporated into this budget to initiate meaningful reforms.

The Union Budget 2025-26 is expected to focus on introducing GST law amendments, as recommended by the GST council, specifically about providing a legal framework to invoice management system.

On the trade and customs front, a one-time custom amnesty scheme is widely anticipated, in line with similar amnesty on the GST and direct tax side earlier. The government is expected to maintain its strategy of increasing basic custom duties on various imported goods but reduce it on components of such goods, to further promote domestic manufacturing in India. Additionally, the government is expected to introduce more phase-wise manufacturing programmes to enhance local manufacturing capabilities.

This micro-site is your repository for all budget-related information. Through this channel, KPMG in India’s partners and various sector leaders will engage and share insights on the Union Budget 2025-26.

Key expectations from the Union Budget 2025-26

Direct Tax
Banking, Financial Services and Insurance
Global Mobility Services
Transfer Pricing
Indirect Tax

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Incentives for a higher investment in research and development and in the manufacturing sector

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Measures to reduce tax litigation and to improve the efficacy of the existing tax dispute mechanisms

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Continuation of rationalisation of TDS/TCS provisions and of capital gain taxation regime

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Reduction of transfer pricing compliance rigour (by extending safe harbour rules, introducing block assessment etc.)

Foreign bank tax rates

Previous budget reduced tax rates for foreign companies. However, foreign bank branches in India still face higher taxes than Indian banks. Further tax rate reduction needed for competitiveness
Securities Transaction Tax (STT)

Originally introduced for tax exemptions on long-term capital gains and concessional rates for short-term gains. With competitive tax rates now in place, STT abolition warranted
NBFCs growth and tax benefits
NBFCs expanding due to rising credit demand and digital transformation. Tax benefits for banks gradually extended to some NBFCs. Immediate notification needed for thin capitalisation interest disallowance exclusion. Amendments expected for:
- Recognising interest conversion into debentures/bonds as payment
- Exempting TDS on interest payable to NBFCs
GIFT-IFSC Incentives
Enhancing India's position as a global financial hub. Proposed incentives:
- Extend tax holiday for insurance companies to 15-20 years
- Tax exemption for non-residents on ODIs issued by IFSCA registered non-bank entities
- Tax relief for green finance, including green bonds and weighted deductions

SWFs/pension funds tax relief

Extension of tax relief beyond 31 March 2025. Further relaxation in conditions could aid India's development needs
TDS on listed debentures

Budget 2023 removed TDS exemption, complicating cash flow and yield calculations. Reinstating exemption recommended for simplicity and compliance ease
Tax refunds and appeals

Mandate timely processing of appeal effects and tax refunds by Jurisdictional Assessing Officer/Centralised Processing Centre to build taxpayer confidence

This being the first full budget for the new Government there will always be a slew of expectations from a personal tax perspective. However, one has to also bear in mind the current state of economic growth for India, global economic indicators and other factors that the finance minister will consider before presenting the personal tax proposals. Also, the Government has set-up a separate committee for a comprehensive review of the income tax law from a simplification and ease of administration and compliance perspective.

In that backdrop, some of key expectations are outlined below

Providing impetus to the housing sector
Hike in deduction towards health insurance under section 80D
Potentially stable income slab and tax rates
Other procedural amendments

In line with the objective of the Government of Housing for all, it is widely expected that the Government may consider some tax sops for the housing and funding cost for the middle and low income earners. In the context of a self-occupied property, the new default tax regime disallows any deduction for interest on housing loans. Conversely, the old tax regime permits a deduction of up to only INR2 lakhs. This distinction is crucial as buying a home and securing a loan for self-occupation are substantial financial commitments, often spanning long periods. With recent hikes in interest rates and regulatory reforms there is mounting pressure on the real estate sector. To alleviate these challenges and foster home ownership, it is suggested that the Government may reconsider allowing deductions for interest on self-occupied housing loans even under the new default tax regime or enhancing the deduction in the old tax regime to at least INR3 lakhs.

With advancement in healthcare and spiraling medical costs, there is an expectation to increase the current deduction towards health insurance which ranges from INR25 thousand to INR1 lakh (depending on the family member for whom the insurance is taken and his/her age) to INR50 thousand to INR1.5 lakh.

Over the last three-four years the Government has made a conscious effort to make the income slabs and corresponding tax rates more lucrative for taxpayers opting for the new tax regime. Infact the new tax regime tax slabs have been altered in Budget 2023 as well as interim Budget of 2024 as well. This thrust has yielded results as per the statistics released by the Government itself. As per the said statistics for the assessment year 2024-25 (FY 23-24) 72 per cent of taxpayers opted for the new tax regime compared to 28 per cent who chose the old tax regime.

Hence, while there is always expectation from the common man to get more net disposable income in their hands, on a realistic basis it is expected that there may be no changes to the income slabs and tax rates in the old tax regime and minimal changes (if any) in the new tax regime.

Infact, basis the larger agenda of the finance ministry to simplify compliance and procedures under the income tax laws one may expect a few of the following other changes

home

Currently, home buyers who purchase property from non-residents (NR) are required to compute the income of the seller and deduct appropriate tax on such income. This casts an onerous obligation on the individual home buyers. Infact they are also required to obtain Tax Deduction Account (TAN) and file quarterly withholding tax returns. Contrast this with the situation where the seller is a resident – they buyer simply has to deduct 1 per cent TDS on sales proceeds and file a challan-cum return without obtaining a TAN. A similar system, probably with a higher rate of TDS say 2 or 5 per cent, may be introduced for buyers of residential property from a NR taxpayer

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Electric vehicles (EV) are the future. In line with the ESG agenda of organisation, many employers are encouraging employees to consider an EV in their employer car lease arrangement. However, the current perquisite rules provide for valuation only basis cubic capacity of the car. Hence, it may be prudent for the Government to specific a separate value for EVs as well

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For any financial year a revised/belated return can be filed by 31 December following the end of the FY. In many cases (specially in case of individuals with cross border investment and income) the tax returns in the home/host country are not finalised by then. As an example for an US citizen the deadline to file a tax return for calendar year 2024 is 15 April 2025. Whereas he/she has to report his global income in India (if he/she is an ordinary resident of India) for FY 2023-24 (partial period in calendar year 2024) by filing a revised/belated return latest by 31 December 2024. Hence, it may be advisable to provide more time in case of such individuals to file a revised/belated return

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Currently many individuals are receiving summons notices from the investigation wing of the income tax department. While all the information documents are being provided there is no formal intimation of closure of such proceedings required to be communicated to the taxpayers. Hence, it is an expectation that such a requirement is brought about in the income tax law so that taxpayers who have given all information/documents get satisfactory closure

Re-evaluation of Safe Harbour Regulations (SHR)

Taxpayers expect CBDT to relook at the safe-harbour rates, remove the barrier of turnover threshold to expand the coverage, and to extend the safe harbour regime to other transactions/industries
Secondary Adjustment (SA)

Taxpayers expect CBDT to exclude non-resident taxpayers (branch/permanent establishment) from the ambit of SA provisions. Another ask of the taxpayers is to uplift the applicability threshold from INR1 crore to at least INR10 crore
Arm’s length range

Taxpayers expect CBDT to adopting the interquartile range (25th to 75th percentile) to align India’s transfer pricing regulations with international best practices
Filing of form no. 3CEB

Non-resident taxpayers expect CBDT to exempt them from filing of form 3CEB (where they are exempt from filing RoI). Further, taxpayers expect CBDT to enable filing of revised form no. 3CEB

Other expectations

Advance Pricing Agreement programme (APA)

Taxpayers expect CBDT to introduce a fast-track window for renewal applications (both Unilateral APA/Bilateral APA), as well as for applications involving simple/less complex transactions in UAPAs

Limitation on interest deductibility

Limitation of interest deduction with respect to overseas borrowings should be done away with, entirely or at least deferred for five to ten years

Vision of a Viksit Bharat

The Union Budget 2025 is anticipated to further establish the groundwork and provide a strategic plan for attaining the vision of a Viksit Bharat. The NDA government which assumed office in June last year, will present its Union Budget with an expected focus on measures that benefit the common man, creation of infrastructure, support employment generation and value creation
Implementation of GST

Since the implementation of GST, the Union Budget has largely been confined to amendments in the GST Act, with the crux of GST modifications and clarifications being addressed in GST Council meetings. The changes in the act flowing from the 54th and 55th GST Council meetings are expected to be included in the Union Budget

KPMG in India leaders on Pre-Budget 2025-26

The tax code gives us an opportunity to simplify things, which, in a mature state, will generate larger collection for the government. Every Budget is a very fine balance and the machinery is already working on what to focus on. You have seen the government focusing on public spending. If private spending is not there, the government steps in and looks at aspects of infrastructure. It’s got to be growth-oriented. It will impact the fiscal deficit. We’ve seen fiscal deficit come down, but I don’t know how much (further) down they will push it. Ultimately, you want growth and consumption. So those are things that will get spurred.

Yezdi Nagporewalla

Chief Executive Officer

With the Union Budget 2025-26 approaching, expectations arise for a review and possible simplification of Customs duty rates. Tax experts acknowledge that one of the cornerstones of a good tax structure is to have very few rates. Multiplicity of rates not only generates a perception of complexity but also results in more disputes owing to the arbitrage opportunities it creates.

Abhishek Jain

Partner and National Head, Indirect Tax

Indian and foreign MNCs keenly anticipate policy reforms and incentives that the government may introduce to stimulate economic growth, enhance the ease of doing business and align India with the evolving global tax landscape. With revamp of the Income Tax Act, 1961 (‘Act’) already in motion, aiming to simplify its complex provisions, the Union Budget 2025 presents a unique opportunity for the government to address corporate tax issues which hinder business operations and investment inflows into the country.

Himanshu Parekh

Partner and Head of Tax (West)

Budget 2025 has the potential to redefine India’s agricultural landscape by empowering farmers, modernising infrastructure, and fostering sustainable practices. With the right priorities, it can set rural India on a path to prosperity and resilience, fulfilling the government’s vision for inclusive growth

Nilachal Mishra

Partner and Head of Government & Public Services

As we look ahead to the Union Budget for FY 25-26, we hope to see a continued focus on fostering a robust and inclusive economy. Strengthening public-private partnerships, incentivizing innovation, and enhancing digital infrastructure will be key to driving sustainable growth. Additionally, prioritizing infrastructure development, advancing AI and digital technologies, and empowering MSMEs can serve as critical levers to accelerate progress. A well-balanced approach to fiscal consolidation while promoting investments in critical sectors like healthcare, housing, education, and green energy will help shape a resilient future for India

Manoj Kumar Vijai

Office Managing Partner - Mumbai & Head - Risk Advisory

The Indian pharmaceutical and nutraceutical industries are calling for key budget measures to promote growth. They are seeking increased funding for research and development (R&D), tax relief, and improved infrastructure. A major focus is on reducing dependence on China for active pharmaceutical ingredients (APIs) by boosting domestic production through financial incentives and streamlined regulatory processes.

Sagar Pawar

Partner – Deal Advisory

Budget 2025 – Expectations from a personal taxation standpoint

With the overhaul of the existing Income-tax laws on the anvil, the focus in the upcoming Budget is more likely to be on simplification. However, there may still be some room to include a few tax concessions to benefit the individual taxpayers

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Customs Duty Review: Rational Expectations

With the Union Budget 2025-26 approaching, expectations arise for a review and possible simplification of Customs duty rates

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Union Budget 2025's Tax dilemma and Expectations for Viksit Bharat

The Union Budget 2025 is eagerly anticipated, with significant expectations from the banking and financial sectors

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Key expectations from Union Budget 2025

Indian and foreign MNCs keenly anticipate policy reforms and incentives that the government may introduce to stimulate economic growth, enhance the ease of doing business and align India with the evolving global tax landscape