Industry Calls for Tax Incentives Ahead of India’s 2026 Budget

As India prepares for the Union Budget 2026, industry leaders are advocating for the reinstatement of targeted tax incentives and a simplified tax compliance process. This push comes from a recent survey conducted by KPMG in India, which assessed the sentiments of over 100 senior executives and C-suite leaders across multiple sectors, including financial services, technology, pharmaceuticals, healthcare, and consumer markets.

The survey, completed in January 2026, anticipates the implementation of the New Income Tax Act, set to take effect on April 1, 2026. According to the findings, 34% of respondents expect the government to reintroduce a lower tax rate regime linked to manufacturing, particularly as several existing income-tax incentives near expiration. Simultaneously, half of the participants believe the emphasis should shift towards targeted, sector-specific incentives rather than broad-based tax benefits.

Focus Areas for Tax Reform

In terms of tax administration, respondents acknowledged the New Income Tax Act as a significant advancement towards simplification but noted that several areas still require refinement. The survey pinpointed the compliance processes related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), along with the assessment and litigation procedures, as the top three areas needing further attention.

Moreover, the survey highlighted a demand for enhanced clarity regarding the structures within the International Financial Services Centre (IFSC). Approximately 51% of respondents called for the introduction of safe harbour provisions to provide long-term certainty for IFSC-related arrangements.

Personal taxation emerged as another critical focus, with a striking 73% of executives advocating for a significant increase in the standard deduction for salaried individuals. Respondents expressed concerns regarding the efficacy of the current Dispute Resolution Panel (DRP) mechanism, with nearly half indicating that it has not effectively reduced unnecessary litigation.

Additionally, 71% of participants voiced the need for a revamp of the transfer pricing safe harbour regime, particularly concerning margins and thresholds across various business categories.

Challenges in GST Compliance

The survey also revealed challenges surrounding the Goods and Services Tax (GST) Invoice Management System (IMS). About 82% of respondents supported a review of the existing framework, emphasizing the need for stronger reconciliation capabilities to minimize mismatches and credit note rejections, which contribute to increased GST liabilities.

Commenting on the survey results, Sunil Badala, Partner and National Head of Tax at KPMG in India, noted that while recent adjustments to income tax slabs and GST rates have bolstered consumption by enhancing disposable incomes, stakeholders are still calling for additional reforms. He stressed that enhancing dispute resolution mechanisms, revising safe harbour rules, and improving the GST invoice system are key expectations leading into the Budget 2026 announcement.

As the government prepares to unveil its budgetary plans, the insights gathered from KPMG’s survey will likely play a vital role in shaping financial policies aimed at fostering industry growth and ensuring economic stability.