Synopsis: FICCI has urged the government to focus on tax reform and customs facilitation in the upcoming Union Budget 2026-27. The industry body called for clearing income tax appeal backlogs, simplifying TDS rules, clarifying cross-border tax issues, and improving customs procedures to reduce disputes and delays.
As India prepares for the Union Budget 2026–27, the Federation of Indian Chambers of Commerce and Industry (FICCI) has put forward a detailed set of recommendations focused on tax simplification, dispute resolution, and trade facilitation. The chamber has highlighted tax and customs reforms as critical levers to improve business confidence, reduce compliance burdens, and enhance investment predictability.
In a press release, FICCI emphasized the urgent need to clear the mounting backlog of income tax appeals before the Commissioners of Income Tax (Appeals). The organization said that pending appeals and delayed refunds are straining both taxpayers and the system.
To address this, FICCI suggested:
- Filling long-standing vacancies in tax appellate authorities.
- Setting time-bound targets to dispose of small and complex cases.
- Allowing virtual hearings on fixed schedules to speed up the process.
- Granting automatic stays on tax recovery if an appeal remains unresolved for over two years without taxpayer fault.
- Ensuring better coordination between faceless units and jurisdictional officers on remand reports.
Additionally, FICCI has proposed that draft orders be shared with appellants before finalisation, allowing them to correct factual mistakes early in the process.
On easing cash flow pressures during tax disputes, FICCI called for rationalising the 20% pre-deposit requirement for stays on tax recovery. The chamber suggested real-time integration of stay orders with the Central Processing Centre (CPC) to prevent automatic refund adjustments against stayed demands. It also proposed allowing bank guarantees or indemnities as alternative forms of security.
Simplified TDS Framework
To reduce compliance complexities, FICCI recommended a simplified Tax Deducted at Source (TDS) structure:
- Slab-based TDS for salaries.
- Maximum marginal rate for lotteries and online games.
- Two standard rates for all other payments.
It further proposed that B2B payments already reported under GST should be exempt from TDS, and low-yield TDS/TCS provisions on goods transactions should be eliminated. FICCI also suggested publishing a negative list of payments exempt from TDS—such as those to senior citizens, exempt incomes, banks, and registered GST entities.
Clarity for Cross-Border Operations
Addressing the global supply chain concerns, FICCI asked for clear guidelines ensuring that storing components or deploying free-of-cost equipment in India by non-residents for contract manufacturing does not create a “business connection” under the Income-tax Acts of 1961 and 2025. This, it said, would help attract foreign investment and support India’s “Make in India” and technology-driven manufacturing ambitions.
It also sought restoration of the earlier definition of “Associated Enterprise” to prevent unintended transfer pricing implications for unrelated entities such as lenders, manufacturers, and brand owners.
Reforms in Capital Distribution and Customs
On the corporate front, FICCI recommended aligning buyback taxation with capital reduction, especially when financed by share premium or fresh issue proceeds. The chamber noted that treating the entire buyback consideration as dividend risks taxing capital rather than profits.
For customs reform, FICCI proposed expanding the Customs Authority for Advance Rulings beyond New Delhi and Mumbai to other regions, enabling faster and more accessible rulings. It also sought:
- Mechanisms to extend rulings when facts and laws remain unchanged.
- Allowing new group companies to apply for Authorised Economic Operator (AEO) status if the parent firm is already accredited.
- Maintaining Tier-II AEO status post-merger through a simple intimation.
- Establishing a national database of trade notices to ensure uniformity across ports.
According to FICCI, these policy changes would help ease working capital stress, reduce litigation, and improve investor predictability ahead of the Union Budget 2026–27.
Disclaimer: This article is based on FICCI’s official press release and recommendations submitted ahead of the Union Budget 2026–27. It is intended for informational purposes only and should not be construed as financial or legal advice.
