Corporate India is eyeing Union Budget 2026 for big direct tax changes – from fast-track demergers and cleaner transfer pricing rules to fairer buyback taxation, updated job incentives, simpler TDS and relief on IBC loan waivers.
Corporate India Pushes for Big Changes in Direct Taxes
Union Budget 2026 is shaping up to be a big moment for businesses, with corporate India pitching for tax-neutral fast-track demergers, clearer transfer pricing rules, fairer share buyback taxation, updated job-linked deductions, simpler TDS and relief on IBC-related loan waivers to boost ease of doing business and reduce litigation.
Why this Budget really matters
Union Budget 2026 is crucial for businesses because it is the last budget before the brand-new Income-tax Act, 2025 (ITA 2025) kicks in from April 1, 2026. While the new law cleans up language and structure, it keeps most of the tax rules from the old Income-tax Act, 1961 (ITA 1961), which means many old grey areas and pain points still remain. Corporate India is hoping this budget will plug those gaps, cut down tax disputes and make it genuinely easier to do business.
Fast-track demergers: Call for tax neutrality
Fast-track demergers under Section 233 of the Companies Act, 2013 were designed to help small companies and wholly owned subsidiaries restructure quickly without going through the National Company Law Tribunal (NCLT). The big question has been whether these fast-track schemes should enjoy the same tax-neutral demerger status as NCLT-approved schemes under Sections 230–232.
- Under ITA 2025, fast-track demergers are not treated as tax neutral because they are not court-monitored and valuations could be misused.
- Industry argues this is an artificial distinction because the commercial substance of fast-track and NCLT-approved schemes is similar; only the approval route differs.
- Existing anti-avoidance rules can already deal with abusive valuations, so a blanket denial of tax neutrality is seen as harsh.
Since the scope of fast-track demergers was widened in September 2025, companies want the definition of “demerger” in Section 2(35) of ITA 2025 to be updated to explicitly cover fast-track schemes as well.
Associated Enterprises: Need for a cleaner definition
Transfer pricing rules depend heavily on how Associated Enterprises (AEs) are defined under ITA 2025. The law currently has a two-part test: one based on participation in “management”, “control” or “capital”, and another based on specific transactional relationships such as loans, guarantees, intangibles or exclusive supplies.
- The worry is that the wording can be read to mean that transactional links alone could create an AE relationship, even when there is no real ownership or control connection.
- This could pull routine business dealings into the transfer pricing net and trigger unnecessary compliance and litigation.
Corporate India wants a clear clarification: transactional relationships, by themselves, should not make two parties AEs unless there is participation in capital, control or management.
Buyback tax rules: Restoring balance
The Finance Act (No. 2) 2024 completely changed how share buybacks are taxed, shifting the tax burden from companies to shareholders. Today, the entire amount received in a buyback is treated as dividend income in the hands of shareholders, regardless of accumulated profits, while the original cost of shares is treated as a capital loss that can be set off.
- This is a big departure from the earlier “deemed dividend” concept, under which only the portion linked to accumulated profits was taxed.
- Investors argue this new approach over-taxes genuine capital returns and complicates planning for buybacks.
A more balanced framework being sought is:
- Tax buyback proceeds as dividend only up to the company’s accumulated profits.
- Treat the remaining amount as sale consideration and tax it as capital gains.
- Allow shareholders to deduct reasonable expenses related to buyback proceeds, just as they can for other dividend income.
Jobs push: Updating employment-linked tax breaks
Section 146 of ITA 2025 (earlier Section 80JJAA of ITA 1961) allows a 30% deduction on additional employee cost for three years, but only for new employees earning up to ₹25,000 a month. That salary threshold has not moved since 2016, even though wages and cost of living have risen significantly.
Corporate India wants:
- A higher monthly salary ceiling so the benefit actually covers today’s typical entry-level and shop-floor salaries.
- A structure that better supports formal job creation in sectors like manufacturing, services and retail.
Without an updated limit, this incentive risks becoming irrelevant for many employers.
Business reorganisations: More time to file returns
Today, businesses can file modified tax returns after a reorganisation only if the original return was filed before the reorganisation order. When the order comes close to the due date for filing, companies often struggle to comply, especially in complex mergers or demergers.
Industry is asking for a simple rule: give taxpayers a uniform six-month window from the date of the reorganisation order to file modified returns in all cases. This would add certainty and reduce needless technical disputes.
TDS: Simplify rates and compliance
Tax Deducted at Source (TDS) has become one of the most painful compliance areas for companies. Multiple sections, overlapping categories and frequent changes in rates make it difficult even for large, well-advised businesses.
Key issues flagged include:
- Numerous TDS rates and heads, leading to genuine classification errors.
- Difficulty reconciling data across Form 26AS/AIS, income tax returns, GST filings and financial statements, which can result in credit mismatches and disputes.
Corporate India is looking for a clear roadmap to:
- Rationalise and reduce the number of TDS rates and categories.
- Streamline reporting so data tallies across different tax and accounting systems.
Other big-ticket expectations
Beyond these headline issues, businesses have flagged some specific problem areas where quick fixes could ease operations and reduce litigation.
Safe harbour for foreign manufacturers
A safe harbour proposed in Budget 2025 for foreign component makers storing goods in India for just-in-time supply, without transferring ownership, is still not notified. Industry wants this safe harbour to be operationalised so that such storage arrangements do not automatically create a taxable presence in India.
Loan waivers under IBC
Companies undergoing insolvency resolution under the Insolvency and Bankruptcy Code (IBC) often get loan waivers as part of their revival plan. There is a demand that such waivers should not be taxed as income or attract TDS, so that revived entities can truly start with a clean slate and focus on turning around operations.
In short: If these concerns are addressed, Budget 2026 can send a strong signal that India is serious about offering a stable, predictable and business-friendly direct tax regime.