Budget 2026 Expectations: ICAI Seeks Tax Reforms For Lower Litigation, Easier Compliance
January 30, 2026
ICAI also seeks higher surcharge threshold and deductions for medical insurance premiums and maintenance of dependent persons with disabilities under the new tax regime.
With the Union Budget 2026-27 just two days away, the Pre-Budget Memorandum submitted by the Institute of Chartered Accountants of India (ICAI) has outlined a roadmap for tax reforms aimed at easing compliance, reducing litigation and promoting sustainable growth. The institute also sought a higher surcharge threshold and deductions for medical insurance premiums and maintenance of dependent persons with disabilities under the new tax regime.
The recommendations, submitted in November 2025, span direct taxes and international taxation, covering both macro-level policy changes and section-wise amendments to the income-tax law. ICAI said the proposals are designed to rationalise provisions, curb tax avoidance, improve tax collection efficiency and reduce the compliance burden on taxpayers.
ICAI President Charanjot Singh Nanda has said, “ICAI has always been at the forefront of nation building and continues to work closely with the Government as its trusted knowledge partner. Through our Pre-Budget Suggestions for 2026-27, we aim to support a tax ecosystem that promotes ease of doing business, drives sustainable growth and strengthens India’s journey towards a resilient and green economy."
Litigation reduction in focus
A key pillar of ICAI’s recommendations is the reduction of tax litigation. The accounting body has sought decriminalisation of certain prosecution provisions, removal of dual penalties for the same default and limiting return processing to arithmetical errors or prima facie incorrect claims. It has also cautioned against unintended tax consequences arising from retrospective application of notifications defining treaty terms.
ICAI has further proposed excluding guarantee fees from the definition of interest for the purpose of interest deduction limits.
Compliance simplification proposals
To lower the compliance burden, ICAI has recommended the introduction of a year-wise electronic ledger to track TDS, TCS and advance tax payments, enabling easier adjustment against tax dues. It has also suggested allowing tax deduction only on the appropriate proportion of income chargeable to tax, based on a chartered accountant’s certificate, for payments made to non-residents.
Other measures include exemption from obtaining a TAN for transferees paying non-resident transferors and removal of TCS on the sale of scrap.
Tax base and revenue measures
On improving tax collection and preventing avoidance, ICAI has proposed excluding Futures and Options (F&O) trading and speculative business from presumptive taxation. It has also suggested an optional joint taxation scheme for married couples and mandatory audits for all profit-linked deduction provisions.
The memorandum also recommends mandatory return filing by individuals owning more than a specified acreage of agricultural land, a move aimed at widening the tax base.
Rationalisation under the tax law
ICAI has sought rationalisation of the income-tax framework, including a higher surcharge threshold and allowing deductions for medical insurance premiums and maintenance of dependent persons with disabilities under the default tax regime. It has also called for clarity on surcharge rates used to compute the Maximum Marginal Rate and on auto-renewal of registrations for small trusts following the extension of validity from five years to 10 years under the Finance Act, 2025.
Another proposal seeks a prescribed time limit for acceptance or rejection of advance ruling applications.
ICAI noted that its earlier representations have influenced policy outcomes, with over 100 suggestions from its review of the Income-tax Act, 1961, and its memorandum on the Income-tax Bill, 2025, being incorporated into the Income-tax Act, 2025, which comes into force on April 1, 2026.
Finance Minister Nirmala Sitharaman prepares to present the Union Budget on February 1, Sunday.
[News18]
