Budget 2026: A Stable Economy, But Rising Personal Tax Complexity

By Preeti Gupta, Director, Deloitte India

The world economy is going through an extended phase of uncertainty. Growth in developed economies has slowed, geopolitical tensions remain unresolved, and investment flows continue to shift in response to changing global priorities. Against this backdrop, India stands out as a resilient economy. With GDP growth expected to remain in the 6–6.5 per cent range, supported by policy continuity, structural reforms, and a steady domestic demand, India approaches the Union Budget 2026–27 from a position of relative strength.

For individual taxpayers, past budgets have delivered some tangible relief, particularly through rationalised tax slabs and rebates under the new tax regime. While common taxpayers still continue to expect some form of tax relief from the upcoming Budget, for many, tax relief is no longer the primary concern. As workforces become more mobile, compensation structures become more nuanced and cross-border income more common, personal taxation has grown increasingly complex. In this context, expectations from Budget 2026–27 go beyond headline announcements - they are centered on clarity, predictability, and ease of compliance.

Addressing Gaps in the Current Personal Tax Framework

One of the pressing concerns relates to the taxation of employee stock options (ESOPs) for mobile employees. While ESOPs are taxed as perquisites at the time of allotment under existing law, there is no clear guidance on how such income should be apportioned when employees have rendered services both in India and overseas during the grant-to-vesting period. This ambiguity has led to inconsistent assessments, avoidable litigation, and hardship for expatriates and returning Indians. Clear apportionment rules aligned with global practices would go a long way in addressing this issue.

Another emerging area is the valuation of perquisites for Electric Vehicles (EVs) provided by employers. While detailed valuation rules exist for conventional fuel cars, similar clarity is absent for EVs. With the government actively promoting electric vehicles, the lack of defined valuation norms creates uncertainty for employers and employees alike, increases withholding and litigation risks. Notifying clear EV-specific valuation rules would ensure smoother adoption and tax certainty for employees.

Easing Cash Flow and Compliance Challenges

Foreign tax credit (FTC) continues to be a pain point for globally mobile salaried individuals. Currently, FTC can be claimed only at the time of filing the income tax return, resulting in excessive tax deductions during the year and significant refunds later. This creates cash-flow challenges, particularly for employees receiving incentives or stock-based compensation taxed overseas. Introducing a framework that allows FTC to be considered at the TDS stage, with appropriate safeguards, would align India with international best practices and reduce unnecessary refund cycles.

Similarly, the timelines for filing revised or belated returns pose difficulties for taxpayers with foreign income. While the updated return window has been extended to 48 months, revised returns still need to be filed by 31 December of the assessment year. Given the mismatch between Indian and overseas tax calendars, extending the date of filing the revised/ belated tax returns further would ease compliance and reduce disputes.

Improving the Taxpayer Experience

Beyond policy changes, taxpayers are increasingly focused on administrative efficiency. A real-time refund tracking mechanism on the income tax portal, providing clear status updates and indicative timelines, would significantly reduce anxiety and grievances.

There is also a strong case for simplifying TDS compliance for property transactions involving non-resident sellers. The current process places a disproportionate burden on home buyers, who must obtain a TAN and comply with complex procedures. Introducing a simplified challan-cum-statement mechanism similar to the resident transactions would ease compliance for all parties.

Finally, reforms to the Capital Gains Account Scheme (CGAS) are overdue. Digitising CGAS, integrating it with the income tax portal, and allowing participation by private banks would modernise the scheme, reduce errors, and improve transparency.

As India continues its journey towards a simpler, technology-driven tax ecosystem, Budget 2026–27 presents an opportunity to move from broad-based reforms to targeted refinements. Individual taxpayers are now expecting clarity on emerging issues and a more intuitive compliance experience. Thoughtful changes in these areas can strengthen trust, reduce disputes, and reinforce voluntary compliance—an outcome that benefits both taxpayers and the exchequer.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)