Union Budget 2026 income tax: Why focus should shift from tax rates to real ease of compliance

By Sureshkumar S

India enters the Union Budget 2026 on relatively strong economic footing, supported by steady growth, resilient domestic demand and continued investment in digital public infrastructure.

Over the last few years, personal taxation has seen meaningful changes, particularly in the form of revised slabs, and a gradual shift towards the new tax regime. Thus, the expectations now are more towards certainty, transparency and ease of compliance.

These challenges are most visible in everyday interactions with the tax system, particularly around refunds, property transactions involving NRIs and capital gains reinvestment.




Refund Experience: Faster Processing, But Limited Visibility

The Central Board of Direct Taxes (CBDT) has made notable progress in improving refund processing timelines following the filing of income tax returns. The income tax portal also provides status updates for each financial year, indicating whether a refund is under process, issued or returned. Despite this progress, taxpayers still lack real-time, granular visibility into where their refund stands once returns are filed.

This absence of detailed tracking often results in uncertainty and anxiety, particularly in cases involving large refunds that are not credited to bank accounts within a reasonable period. The lack of clarity also disrupts financial planning and leads to an increase in follow-ups, queries and grievances raised with the tax department.

Budget 2026 should prioritize and set the stage for the introduction of a real-time refund tracking dashboard on the taxpayer portal. This could include clear status indicators such as “Under Processing” “Approved” “Sent to Bank” and “Credited” along with indicative timelines. An escalation option where refunds are delayed beyond expected timelines, supported by automated SMS and email alerts, would significantly improve transparency and the overall taxpayer experience.

TDS on NRI Property Transactions: A Disproportionate Compliance Burden

Under the current provisions, home buyers are required to withhold 1 percent of the purchase value as Tax Deducted at Source (TDS) where the property value is INR 50 lakh or more. Where the seller is a resident, the TDS deposit process is relatively simple and convenient through a challan-cum-statement in Form 26QB.

However, when the seller is a non-resident, the compliance framework changes significantly. Taxes are required to be withheld at a higher rate, and the buyer must obtain a Tax Deduction Account Number (TAN), deposit the tax deducted and file e-TDS returns. For what is typically a one-time transaction, this prolonged process creates a serious compliance burden for buyers. In addition, lack of accurate information or timely confirmations from the seller exposes buyers to compliance risks.

From the seller’s perspective, between 12.5 percent and 31.2 percent of the sale consideration often remains blocked with the tax department, even in cases where there may be no final tax liability in India. This framework discourages legitimate transactions and creates avoidable friction. Budget 2026 should consider easing this process by introducing challan-cum-statements for NRI sellers, similar to those applicable in resident transactions.

Capital Gains Account Scheme: Stuck in a Pre-Digital Era

The Capital Gains Account Scheme (CGAS) is a well-intentioned framework that allows taxpayers to claim exemptions under Sections 54, 54F and related provisions by reinvesting capital gains. However, the scheme continues to operate in a largely manual and bank-dependent manner, with accounts permitted only through designated public sector banks. Taxpayers are required to manually track deposits and withdrawals, while reporting in income tax returns, particularly in ITR-3, remains complex and prone to errors.

These limitations create compliance risks, including incorrect reporting and procedural delays that can jeopardise exemption claims if reinvestment timelines are missed. Budget 2026 should focus on revamped CGAS which enables digital account opening linked to PAN, allowing participation by private banks and integrating deposit data with the e-filing portal to enable auto-population in tax returns.

As India’s tax framework evolves, the next phase of reform must focus on what happens after the returns are filed. Parameters like greater predictability in refunds, simpler transaction-level compliance and digitally integrated exemption mechanisms can significantly ease the taxpayer journey without altering the underlying tax structure.

Budget 2026 has an opportunity to build trust by using existing digital systems to create a more transparent, responsive and taxpayer-centric compliance ecosystem.



(Sureshkumar S is Partner, Deloitte India)