Cutting litigation and speeding up dispute resolution are key industry demands for the budget.
Piling litigation and the need for Tax Deducted at Source reforms are two pressing issues posing immediate challenges for the government, Ashutosh Dikshit, partner at Deloitte India, told ET. “The most important issue is the delay at the appeal level, which continues to clog the system. The department should allow refunds of taxes collected during the pendency of appeals to unlock blocked capital,” he added.
Litigation and TDS reforms feature prominently among the pre-budget recommendations submitted by the Federation of Indian Chambers of Commerce and Industry (Ficci) and the Confederation of Indian Industry (CII).
According to Ficci, the backlog of appeals pending before Commissioners of Income Tax (Appeals) stands at around 540,000 cases, involving disputed tax demands of approximately ₹18.16 lakh crore.
The industry body attributed the massive pendency to the faceless appeal regime, saying it has suffered from inadequate monitoring of the system’s functioning. “The budget must now focus on precision reforms, ensuring statutory clarity and reducing friction in taxation, which can unlock private investment and support sustained growth,” said Manish Singhal, secretary general, Assocham.
He proposed amendments to the I-T law to broaden tax neutrality for business reorganisations while relying on existing anti-abuse safeguards instead of blanket exclusions.
Another key issue relates to the taxation of income and profits attributable to permanent establishments under the Income Tax Act, clarity on which could provide greater certainty to companies looking to establish operations in India.
The General Anti-Avoidance Rule (GAAR) is also an area of concern. While GAAR is intended to apply only when obtaining a tax benefit is the main purpose of an arrangement and at least one “tainted element” test is met, stakeholders say the lack of detailed guidance has created uncertainty. “There is a need for comprehensive guidance on every aspect of GAAR, including illustrative examples like how to determine ‘main purpose’ when multiple purposes exist,” said Richa Sawhney, partner, tax, at Grant Thornton Bharat.
While GAAR cases require prior approval from an independent Approving Panel, no such safeguard exists when treaty benefits are denied under the Principal Purpose Test introduced through the Multilateral Instrument.
Another area requiring clarity is the equalisation levy. The 2% levy on e-commerce supply of goods and services was abolished with effect from August 1, 2024, while the 6% levy on online advertising ended from April 2025.
