Union Budget 2026: India’s ease of doing business pivot - tax fixes that matter

By Jayashree Parthasarathy

India’s growth aspirations demand a tax environment that is simpler, more predictable and aligned with modern business realities. While GST and Customs digitalisation have undeniably transformed the landscape, companies continue to face operational bottlenecks that slow down activity, tie up working capital and drive up compliance costs. These factors directly affect the country’s ease of doing business.

In this backdrop, the 56th GST Council meeting marked significant progress by tackling several long-standing pain points. Union Budget 2026 now has an opportunity to build on this momentum and deliver a tax ecosystem that is faster, more consistent and easier for businesses to navigate.




Strengthening the Input Tax Credit Framework

A key long pending ask and expectation from the upcoming Budget is a more flexible and business-friendly input tax credit (ITC) system. Companies have long argued that credits representing taxes genuinely paid and used in business operations should be freely available or refunded.

Two specific asks remain critical:

• Refunds for input services and capital goods under inverted duty structures.
• Reassessment of blocked credits—especially those that relate to legitimate business needs such as employee-related facilities (e.g., cab services, insurance) and leasing arrangements.

Allowing smoother credit flow across GST registrations would also unlock meaningful liquidity for enterprises.

Recognising More Services as Exports

The recent GST Council decision to treat intermediary services as exports (therefore removing the GST levy) is a welcome step and industry now awaits its formal implementation as a part of the budget process.

Businesses are also expecting similar clarity for R&D and testing services, which currently attract 18% GST because place-of-performance rules prevent them from being classified as exports. A consistent and globally aligned export definition would boost India’s competitiveness in high-value service segments.

Simplifying Compliance and Reducing Litigation

Compliance complexity remains a major concern with an expectation that multiplicity of proceedings would be addressed. A single, centralised audit and faceless assessment system, similar to the efficient model used under the erstwhile service tax regime, would give pan India businesses one point of engagement, reduce repetitive scrutiny and minimise conflicting interpretations across States.

Large taxpayers would particularly benefit from a centralized single point of contact approach by way of:

• Large Taxpayer Units,
• Stronger Centre–State coordination, and
• Elimination of parallel or contradictory proceedings.

A uniform, risk-based audit framework would further enhance consistency and limit unnecessary scrutiny. Equally important is a more calibrated enforcement approach; one that acts firmly against evasion but avoids punitive measures such as asset attachments or frequent detention of goods in cases involving interpretational differences or procedural lapses. A clearer differentiation between wilful violations and good-faith positions will go a long way in restoring business confidence.

Relief for MSMEs

For India’s smallest enterprises, current GST registration thresholds (₹20 lakh for services and ₹40 lakh for goods) no longer reflect today’s cost structures. Near-decade-high inflation has pushed many micro-businesses into the GST net perhaps far earlier than intended. Raising the threshold to reflect current realities would preserve working capital and support MSME viability.

Clearing Customs Backlogs and Improving Predictability

On the Customs side, businesses continue to face prolonged timelines in dispute resolution, with legacy cases stretching for years and delaying investment decisions. A time-bound settlement mechanism, similar to earlier dispute-resolution schemes, would help clear the backlog and allow both industry and the department to focus on priority matters.

Businesses are also seeking greater certainty through longer-validity advance rulings and simpler renewals, so long-term projects are not disrupted by tax disputes merely on account of lapse of time.

Operational friction also remains a day-to-day challenge at the border. Even after goods are cleared, companies often face manual processes to pay differential duties or correct documents for host of reasons including price variation, corrections. Allowing digital payments and online amendments, and ensuring such payments qualify for GST credit, would reduce compliance effort and minimise cash-flow disruptions.

Cross-border businesses are also looking for clearer, time-bound guidelines around Special Valuation Branch (SVB) proceedings. While scrutiny of related-party pricing is necessary, inconsistent practices often create uncertainty for global supply chains. Predictable timelines and uniform standards are essential if India is to position itself as a reliable global hub.

Revisiting the SEZ Duty Framework

Special Economic Zone (SEZ) units seeking to sell into the domestic market face a structural disadvantage, as duties are levied without fully recognising that these units often use domestic inputs. Aligning duty calculations to reflect only the imported content, and/ or extending select benefits available under free trade agreements, would improve capacity utilisation and offer SEZs a more level playing field vis-à-vis foreign suppliers.

A Chance to Build a Future-Ready Indirect Tax System

Budget 2026 offers an opportunity not just for incremental fixes but for meaningful reform that strengthens India’s indirect tax architecture. The foundation laid by GST and recent digitalisation efforts is robust. What businesses now need is a system that is simpler, more consistent and aligned with the needs of a rapidly expanding economy.

If India gets this right, indirect tax reform can become a catalyst not only for smoother compliance, but for accelerating the country’s growth trajectory.

(Jayashree Parthasarathy is Tax Partner, EY India. With contributions from Ketan Lohia, Director-tax, EY India)