In the Pre-budget Meeting for Union 2026-27, ICAI presented its Pre-budget Suggestions advocating prudent tax reforms aimed at facilitating ease of doing business and encouraging environmental sustainability. Towards these objectives, ICAI has, inter alia, suggested that tax neutral status be extended to business reorganisation in LLPs, TDS on partners remuneration be rationalised and incentives be given for promoting green projects.

ICAI's Pre-budget Suggestions on direct taxes and international taxation encapsulate a spectrum of suggestions on tax policy and framework at the macro-level as well as specific-section wise suggestions aimed at mitigating litigation, reducing compliance burden, rationalisation of the provisions of income-tax law, preventing tax avoidance and improving tax collection.

On this occasion, CA. Charanjot Singh Nanda, President, ICAI 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".

ICAI's significant suggestions on each of the above components include:

On mitigating litigation:

• decriminalisation of certain prosecution provisions
• removal of dual penalty for the same default
• processing of returns to be limited to addressing arithmetical errors and prima facie incorrect claims
• retrospective application of notifications defining treaty terms not to lead to unintended tax consequences.
• guarantee fees to be excluded from the meaning of interest for the purpose of limitation of interest deduction.

On reducing compliance burden:

• introduction of year-wise E-Ledger system for crediting TDS/TCS and advance tax payments which can be adjusted against the income-tax due,
• deduction of tax only on appropriate proportion of income chargeable to tax based on a chartered accountant's certificate, by a person responsible for making payment to a non-resident
• Exemption from the requirement of obtaining TAN in the case of a transferee responsible for paying to a non-resident transferor
• removal of TCS on sale of scrap

On preventing tax avoidance/improving tax collection:

• Exclusion of F & O trading and speculation business from the scope of presumptive income
• Introduction of optional joint taxation of married couples
• Requirement for audit of accounts in all provisions providing for profit-linked tax deductions.
• Requirement of mandatory return filing by persons owning more than specified acres of agricultural land

On rationalisation of the provisions of income-tax law:

• Increase in surcharge threshold and provision of deduction for medical insurance premium paid and expenditure on maintenance of dependent disabled under the default tax regime for individuals
• Clarification of applicable rate of surcharge for calculation of Maximum Marginal Rate (MMR).
• Clarification relating to auto-renewal in case of small trusts registered/approved prior to extension of period of validity from 5 years to 10 years by the Finance Act, 2025.
• Time limit to be prescribed for acceptance or rejection of application for advance ruling.

It is noteworthy that the ICAI's suggestions on Comprehensive review of the Income-tax Act, 1961-submitted last year-and its Memorandum of Suggestions on the Income-tax Bill, 2025-submitted in April this year-were positively received, with over 100 suggestions considered in the Income-tax Act, 2025, which comes into force on 1st April, 2026.

ICAI proposes tax reforms including decriminalisation, E-Ledger credits, TDS rationalisation, and incentives for green projects. ICAI proposes pre-budget tax reforms to promote ease of doing business and sustainability by recommending decriminalisation of select prosecution provisions, removal of duplicate penalties, limiting return processing to arithmetical errors and prima facie incorrect claims, exclusion of guarantee fees from interest for deduction limits, introduction of a year-wise E-Ledger for TDS/TCS and advance tax credits, rationalised TDS and TAN exemptions for certain non-resident payments, removal of TCS on scrap, exclusions of F&O from presumptive income, optional joint taxation for married couples, mandatory audits for profit-linked deductions, return filing for large agricultural landowners, and statutory clarifications on surcharge, auto-renewal of small trusts, and time limits for advance rulings.