India’s Union Budget for 2026-27, scheduled to be presented on February 1, 2026, is expected to focus on tax simplification, faster dispute resolution and measures to enhance India’s global competitiveness,
according to a pre-Budget survey by KPMG.
“The India Union Budget 2026-27 is expected to be presented on 1 February 2026 as India’s economy is forecast to expand by 7–7.5 per cent, driven by resilient consumer spending, infrastructure upgrades, and ongoing policy initiatives,” the survey on stakeholder expectations said.
However, the report flagged persistent challenges on the tax litigation front, pointing out that “over 540,000 pending appeals” highlight the urgent need for faster disposal of cases, greater clarity and further simplification of tax laws. Against this backdrop, KPMG said a series of targeted direct and indirect tax measures could help accelerate economic momentum and improve the ease of doing business.
One of the key expectations relates to corporate restructuring. While the government has been encouraging fast-track mergers and demergers, the survey said the Income-tax Act, 2025, does not currently provide tax neutrality for fast-track demergers, creating uncertainty for businesses. Granting tax-neutral status, it said, would help streamline restructuring, reduce compliance costs and allow companies to reorganise more quickly to unlock growth opportunities.
The survey also highlighted the need to rationalise the holding period requirement for slump sale transactions. It noted that although most assets qualify as long-term after 12 or 24 months, undertakings transferred through slump sales still require a 36-month holding period. Reducing this to 24 months would align the rules with other asset classes and improve the attractiveness of such transactions for efficient capital reallocation.
On international taxation, KPMG pointed to challenges faced by foreign companies operating in India under presumptive tax regimes. It said MAT exemptions are currently available only when income solely comprises specified business income, creating difficulties when incidental income arises. A clearer and broader exemption, according to the survey, would improve India’s competitiveness for foreign companies engaged in shipping, aviation, civil construction and oil exploration services.
The survey further called for removing ambiguity in the definition of Associated Enterprises under transfer pricing rules, noting that overlapping provisions and unclear thresholds often lead to disputes. A more objective and streamlined definition would, it said, reduce compliance complexity and litigation for multinational groups.
Another major expectation outlined in the survey is the extension of dividend tax exemption for investors in International Financial Services Centres. While interest income from IFSC units is currently exempt, dividends paid to non-resident shareholders are taxed at 10 per cent. Removing this tax, KPMG said, would help attract long-term foreign capital and strengthen India’s position as a global hub for wealth management and investment funds.
On the indirect tax side, the survey said several GST-related reforms could significantly improve cash flows and reduce disputes. It identified the proposed deletion of Section 13(8)(b) of the IGST Act as a key reform, which would shift the place of supply for intermediary services to the recipient’s location. According to KPMG, this change would align India’s GST framework with global principles and reduce litigation in cross-border service transactions.
Simplification of post-sale discount provisions under GST is another area highlighted in the survey. It said amending Section 15(3)(b) of the CGST Act to remove the requirement for discounts to be pre-agreed and linked to specific invoices would better reflect commercial realities and ease compliance, particularly for businesses operating high-volume or incentive-based pricing models.
The survey also called for the omission of Section 54(14) of the CGST Act, which currently prescribes a minimum threshold for export refund claims. Removing this restriction, it said, would provide significant relief to small and medium exporters using courier and postal channels by improving liquidity and export competitiveness.
In addition, KPMG suggested introducing provisional refunds for inverted duty structure cases by amending Section 54(6) of the CGST Act. Allowing risk-based provisional refunds would help speed up access to working capital and reduce prolonged delays, bringing such refunds on par with zero-rated supplies.
“One hopes that the direct and indirect tax changes in the upcoming budget will deliver a tax ecosystem that is simpler, predictable, and aligned with the best global practices,” the survey said, adding that such reforms could reduce disputes, ease compliance, improve cash flow efficiency and reinforce India’s position as a preferred destination for global capital.
