FY27 Budget should streamline withholding tax regime: Deloitte
The Budget for 2026-27 should streamline the withholding tax regime and introduce tax incentives to drive investment and innovation in emerging and high-potential sectors like R&D, renewable energy, Deloitte India said on Tuesday.
Deloitte India, in its FY 2026-27 Budget wishlist, also recommended that the government should digitalise the customs litigation process to allow digital filing of letters, appeals and all correspondence with Customs authorities, in line with existing practices under the GST law.
It also suggested that the Central Board of Direct Taxes (CBDT) should consider implementing a real-time refund tracking dashboard within the taxpayer portal that includes clear status indicators with indicative timelines for refund credit.
A ‘Raise Concern’ or ‘Escalate’ button if the refund is delayed beyond expected timelines could be provided for better taxpayer experience, reduce manual follow-ups and align India’s tax systems with global best practice, Deloitte said in its 2026 Budget expectations.
The Budget for 2026-27 will be presented in Parliament on February 1.
From the policy side, it recommended establishing a Trade Resilience Fund to support sectors affected by tariffs (exporters and MSMEs) or supply-chain disruptions. The fund can be used to provide temporary fiscal or credit assistance to exporters facing margin erosion due to tariffs or input cost volatility.
To increase access to finance for MSMEs, Deloitte recommended a ‘green channel treatment’ in banks for compliant MSME and a MSME liquidity and growth fund, channelised via non-banking financial companies (NBFCs)/FinTech companies.
Elaborating on the withholding tax regime, Deloitte said that the current framework involves multiple TDS/TCS rates, ranging from 0.1 per cent to 35 per cent, leading to significant complexity and an increased risk of compliance errors. Excessive withholding often results in liquidity constraints for taxpayers and additional administrative efforts to seek refunds.
To further streamline the withholding tax regime and enhance compliance efficiency, it suggested using GST to reduce TDS/TCS compliance.
It also recommended that withholding tax provisions be designed for 3 categories— goods, services and residuary transactions, (like interest and dividends).
To position India as a global hub of innovation and advanced technology such as R&D, renewable energy and AI, Deloitte recommended expanding the existing tax incentive framework.
Global economies such as South Korea have been focusing on targeted R&D investment with tax credits for investments in strategic technologies and new growth sectors, and emphasising investment in tangible assets. The US approach, meanwhile, relies more on market-based mechanisms and tax incentives.
It is recommended to introduce specific tax incentives, including substantial tax breaks, deductions and reduced corporate income tax rates, to drive sustained investment and innovation in such emerging and high-potential sectors, Deloitte added.
