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In this episode of Budget Insights, a podcast series from EY India Insights, Sonu Iyer, National Leader, People Advisory Services – Tax at EY India shares her perspectives on what Budget 2026 could possibly have for individuals, employees and employers. She also highlights the importance of building on the relationship of trust with taxpayers and leveraging digitalization of the tax department to expedite some of the processes.
Key takeaways
Enhanced tax rebate could help low-income earners with personal tax relief.
There can be sharper focus on improving taxpayer experience.
This can include simplifying tax return forms for easier compliance and regular notifications on tax payment status.
Digital framework can be used to increase taxpayer information and awareness.
There is a need to address bottlenecks in tax dispute resolution before the Commissioner of Income Tax Appeals.
Mediation measures for quick digital clarifications on the tax portal itself can be considered.
We may see the Finance Minister choose stability and more focus on administrative aspects of the (income) tax law rather than the actual changes in the tax law.
Sonu Iyer
National Leader, People Advisory Services - Tax, EY India
For your convenience, a full text transcript of this podcast is available on the link below:
Pallavi
Welcome to Budget Insights, a podcast series from EY India Insights, where we bring perspectives on key policy developments shaping India’s economic landscape.
I’m your host, Pallavi, and in today’s pre-Budget episode, we will discuss expectations, priorities, and potential focus areas ahead of the upcoming Union Budget.
We are delighted to be joined by Sonu Iyer, National Leader, People Advisory Services – Tax at EY India. Sonu brings deep experience in personal taxation, labor and employment regulations, social security, and workforce-related policy matters. She will share her perspectives on what individuals and employers should watch out for in the forthcoming Budget, and the reforms that could shape India’s talent and employment ecosystem.
Thank you, Sonu, for joining us today! And it’s a pleasure to have you here.
Sonu Iyer
Thanks, Pallavi. As you pointed out, India is seeing a series of reforms, particularly as they impact employers and employees in the country. We are in the middle of mega labor laws, by way of labor codes, that have been put into force from 21 November 2025. If you look at it in the backdrop of what has been happening in our previous Budgets, directionally, we are clearly moving towards simplified tax regime.
Budget 2025 to that extent was very much of a game changer. And we have seen outcomes which suggest that more and more taxpayers have actually moved to the new concessional tax regime. Directionally, the philosophy with which the new tax regime was introduced, or the concessional tax regime was introduced, was to create a simplified tax structure with lower tax rates, wider slabs and, broad based compliance.
I am happy to report that we have seen an increase in the number of tax payers, we have seen increase in the tax collections. And is it really what no one would have hoped for. We could continue to hope for more and more on this, both from a tax collection standpoint as well as from the number of taxpayers who file their tax returns.
But it is a very big positive that we are seeing. Adoption of the new tax regime, more and more tax payers moving towards the simplified new tax regime or concessional tax regime, kind of tells its own story really, that this is the way that taxpayers are going to be filing taxes in the future as well.
Pallavi
Sonu, the concessional tax regime has steadily become the default over the last few Budgets, as you just stated. How do you see Budget 2026 building in this direction to further simplify personal taxation while supporting consumption?
Sonu Iyer
We are also at a point where a brand new income tax law has been set up. It comes into force from April 2026. So, the Budget 2026, which the Finance Minister will unveil on 1 February 2026, has to make provisions which are for the law that is already in force. Personally, I think we may see the Finance Minister choose stability and more focus on administrative aspects of the (income) tax law rather than the actual changes in the tax law.
Simply put, I am not expecting any changes in tax rates or tax slabs to happen. There were quite a few changes made in the previous Budgets. And as I said, when you are putting into force a brand new income tax Act, as of 1 April 2026, the focus has to be on improving compliance, improving taxpayers experience, making it administratively easier to dispense the income tax law in the country.
So, no changes in tax slabs policy, if at all. If there is going to be any change at all, I had probably see maybe an increase in the tax rebate, which currently allows any person whose total income is INR12 lakh to not pay any tax because with total taxable income of INR12 lakh or INR12.75 lakh in case you are a salaried income earner, you have the ability to leverage the maximum amount of income tax not chargeable to tax up to INR4 lakh. So, if at all you see any provision on personal tax giving any relief, we could look for enhanced tax rebate to help low-income earners. Because remember, the economy has been resilient despite geopolitical uncertainties, the inflation has been kind of well managed. In fact, it is moderately lower than earlier years. So, all of that really suggests that the FM may choose to continue to build on what has already been created. Stability over any more changes is what I would suggest as a theme of the new Budget or Budget 2026.
Pallavi
Sonu, capital gains taxation has seen significant rationalizations, including consolidation of asset classes and changes to indexation. What additional clarity or fine tuning would you expect in Budget 2026 to improve taxpayer certainty?
Sonu Iyer
I think in the 2024 Budget we saw this whole rationalization and simplification of capital gains. They took away the indexation benefit, except in case of immovable property purchase by 23 July 2024. And we had a unified, long-term capital gains rate of tax at 12.5%, which was introduced. So, we have seen a lot of rationalization already as far as the capital gains taxation is concerned.
I do not see any more changes coming in because in terms of period of holding also variable, some assets were being taxed after 36 months of holding as long-term capital gains. They were brought into 24 months categories holding period to qualify as long-term capital gains. So, the point is that they have already done the work, they have brought in simplification and so it is fairly simplified.
I do not expect anything further to happen. Perhaps, in case of equity shares where you have a threshold, exemption may go up to INR2 lakh from the current INR1,25,000. But that's more wishful thinking, I think, at this point of time.
Pallavi
Thank you. Sonu, Compliance easing has been a key theme, with changes in TDS/TCS provisions and extended timelines for updated returns. What further measures could help reduce compliance burden for individual taxpayers?
Sonu Iyer
Like I mentioned, I expect this particular aspect to be the focus of this Budget, the focus on improving taxpayer experience, focus on broad based compliance through ensuring simplification, ease of compliance, which can be the very tactical bits in terms of how the tax return forms are prepared, making it easier for people to know what the current status of tax payments is, notifying them from time to time as more and more income data is collected from various stakeholders, whether it is banks or tax deductions, etc.
So, using the digital framework of the tax department to enable more and more information and awareness for the taxpayers, ensuring that what bottlenecks we currently see in terms of delays in processing of tax returns, thereby delaying tax refunds and other challenges (are addressed). While the NUDGE (Non-intrusive Usage of Data to Guide and Enable) campaign, which the government has started, is a very useful tool for creating greater awareness among taxpayers for better tax compliance. I think that probably needs to be kind of tightened in terms of how it is used and the timing of NUDGE intervention. Last year, we saw a lot of notices come towards the end of the year, 31 December 2025, advising taxpayers to correct errors.
Maybe in terms of putting together a framework on the timing of issuing of NUDGE notices and the NUDGE campaign could be bettered, building a framework to ensure that all the bottlenecks today -- we have a complete pipeline of matters that are pending before Commissioner of Income Tax Appeals -- so that dispute resolution, which is one of the stated goals of the new income tax law as well as a new income tax era that the Finance Minister wants to usher in, maybe more interventions around that.
In this Budget, the work can really be towards taxpayer experience and ease of compliance to change the way the tax system works in the country.
Pallavi
Thank you, Sonu. Emerging and complex areas such as Virtual Digital Assets, ESOP taxation, and employer contributions to specified funds continue to pose challenges. What clarifications would you prioritize in the upcoming Budget?
Sonu Iyer
Taxation of Virtual Digital Assets is at 30%. The only deduction that is available is the cost of acquisition, but no other expenses are eligible for deduction. There is no set of losses on VDAs that is permitted currently.
What a taxpayer would appreciate is, and we also have to acknowledge that this is now pretty much a very large area of investment for people who want to invest in assets. They invest in virtual digital assets like cryptocurrency or non-fungible tokens. If that is the evolving and emerging area, I think clarity early on in taxation of such assets will be really helpful, both for the tax department as well as the taxpayer.
Around ESOPs, a long pending demand has been that this income from stock options should be taxed when it is actually realized. Currently, we have this benefit available for eligible start-ups, that the income tax can be deferred and be paid only when there is an actual sale of the shares, shares issued under stock options.
But this is a benefit that everyone who gets options, irrespective of who the employer is, should be able to get and be allowed to pay tax only when they actually realize the gains from shares issued under an ESOP plan. So that could again be on the wish list rather than ‘likely to happen’ as far as I am concerned. This would be helpful in the area of clarity you mentioned.
The other thing is that currently we have a cap of INR7.5 lakh on employer's contributions into provident fund superannuation and NPS. And what happens is that any excess contribution of the employer, all of these combined together, which exceeds INR7.5 lakh, is taxable and accretions on that excess portion are also taxable. But the challenge or the confusion is which order of allocation. So, if there can be some clarity on that, it would help because the ROI varies in all these… provident fund, superannuation, NPS, etc. So the taxation would become much more simple and uniform with this clarity about how this 7.5 lakh has to be allocated between various funds.
Going back to the fact that administratively and operationally we can get greater clarity, that will also help in really kind of making our tax compliance more robust and easier to comply with.
Pallavi
Thank you, Sonu. Lastly, from a process and administration standpoint, issues such as delayed refund, pending appeals and increased use of data-led NUDGE campaigns are in focus. So, what reforms could meaningfully improve taxpayer’s experience and trust?
Sonu Iyer
Yes, as we mentioned earlier, NUDGE is the buzz word, right? And it is as the name suggests, it is using analytics based on the data of taxpayers to create any red flags that the tax department is noticing. But, as I pointed out, that is where we need to sort of strengthen our NUDGE system to use data analytics much more effectively, but building on the relationship of trust with the taxpayer, so that it does not create unnecessary anxiety. There is a pure basis transparency of data used in NUDGE, to trigger any action because of the large number of tax returns, particularly in 2024, 2025, where we are seeing many returns that are pending tax refunds that have not been issued.
There is a concern that how digitalization of the tax department is not actually expediting some of these things, like processing of tax returns and tax refunds. Maybe we could have a real-time tracker available for taxpayers to know the status of the tax return and if any red flag has been raised. There should be some sort of mediation measure that can be introduced wherein the individual can quickly clarify, digitally itself on the portal, if there is a question from the tax department and an answer is available or an evidence is sought that can be provided immediately without waiting for full proceedings to start. That will help.
Well, as I said, the taxpayer experience and build on relationship of trust are some of these things that would one would look to have the Finance Minister maybe talk about in the Budget from a personal tax standpoint.
Pallavi
Thank you, Sonu. That brings us to the end of this episode. Thank you for sharing your insights and the pre-Budget perspectives. Your views will certainly help the listeners to set the context of key expectations and area of focus as we approach the Union Budget 2026.
Sonu Iyer
Thanks, Pallavi, and thank you to all our listeners for tuning in to get our Budget insights, which is really how at EY we are looking at the Budget 2026. As I said, we have got fiscal consolidation and we have got a stable tax system and a large number of individual taxpayers have moved already to the New Tax Regime. Looking for stability and more proactive measures for improved tax administration and tax compliance.
Thanks a ton, Pallavi, for this.
Pallavi
Thank you, Sonu. And thank you to all our listeners for tuning in to the Budget Insights, which is part of the EY India Insights. Stay connected with us for post-Budget analysis as well, and the commentary on how policy developments impact businesses and individuals. Until next time, this is Pallavi signing off.
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