India Inc calls for simplified tax reforms to boost compliance

As the Finance Ministry evaluates the Income Tax Act, a survey conducted by Deloitte Touché Tohmatsu India reveals that 94 percent of industry leaders emphasize the importance of simplifying tax regulations, while 43 percent advocate for enhanced mechanisms for resolving tax disputes. The goal is to improve tax certainty, eliminate ambiguities, reduce litigation, bolster investor confidence, and enhance services for taxpayers.

The complexities associated with tax reporting pose significant challenges to conducting business, particularly for small enterprises that face onerous compliance requirements. More than 70 percent of these businesses have underscored the necessity for more straightforward processes. Furthermore, there is a prevailing concern regarding the substantial time and costs associated with tax litigation, underscoring the urgent need for more streamlined and effective dispute resolution methods.

Despite these challenges, 61 percent of respondents appreciated recent reforms, particularly the integration of advanced technology through the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) tools. These pre-filled tax returns have simplified access to financial data, reducing the time spent on data collation and encouraging higher voluntary compliance, as reflected in the rise in tax returns filed over the past two years.

Commenting on this, Gokul Chaudhri, President – Tax, Deloitte India, said, “To enable its full economic potential and establish itself as a growth leader, India has an opportunity to revamp the tax framework that is simplified and digitally advanced. The government has made commendable strides with initiatives such as GST simplification, e-invoicing and faceless tax assessments. There is an opportunity for fair value computations and ease in preparing and filing income tax return forms for individuals. A modernised tax system, aligned with recent government initiatives, would enhance compliance, drive growth and bolster India’s competitiveness on a global scale.”

Additionally, 74 percent of respondents highlighted the need to simplify and streamline the return filing process. Executives stressed the importance of clear guidelines and stronger reporting standards within the TDS system to improve compliance and business efficiency. Businesses also called for faster dispute resolution, timely appeal processing and an end to repetitive assessments. Key reform suggestions include a streamlined patent regime, simplified hiring exemptions and a “one rate, one section” model for TDS to reduce compliance burdens.

Amrish Shah, Partner, Deloitte India, said, “In a welcome move, the Honourable Finance Minister, in her Budget Speech for the fiscal year 2024–25, announced the historic initiative of reviewing the existing income tax law, an exercise aimed at simplifying the law, making it easy to read and comprehensible, thereby reducing disputes and litigation and providing tax certainty. This move is well aligned with the policy objective to revamp the economic and commercial legislations to suit the economic needs of India, a nation aiming to become one of the top three economies of the world in the next five years.”

The survey offers a detailed analysis of India’s evolving business and professional needs to sustain economic growth and retain its position as the fastest-growing economy. It recommends streamlining transfer pricing regulations by adopting global best practices and reducing tax complexities through proactive measures that ensure clarity and alignment of rules to support effective business structuring.

The survey revealed strong industry support for introducing tax laws that promote manufacturing, advance ESG priorities and foster innovation and R&D as key drivers of economic growth. About 71 percent of respondents emphasized the need for tax incentives to boost domestic manufacturing, enhancing the sector’s growth and job creation potential. The government can use income tax as a strategic tool to position India as a hub for multinational R&D centres. Legislators must introduce targeted incentives to drive research, innovation, and manufacturing, acting as a catalyst for employment generation and economic expansion.

As the Union Budget approaches, these survey insights provide crucial guidance for developing policies that align with India Inc.’s needs. By modernising the tax framework, improving dispute resolution and optimising tax incentives, India can unlock growth, enhance competitiveness, and attract global investment, supporting its vision of becoming a “Viksit Bharat.”