Budget 2025: focus on private investment, personal tax relief and simplified compliance, according to EY

The Union Budget 2025-26, expected to be presented on February 1, 2025, is expected to focus on private capital expenditure (capex), tax simplification and personal income tax relief for low-income groups, aiming to boost demand, EY India said.

In its note on budget expectations, EY highlighted that over ₹31 crore remains stuck in income tax disputes from 2023-24, highlighting the need to clear the arrears of the Commissioner of Taxes. income tax (appeals) and strengthen alternative dispute resolution mechanisms, such as advance. pricing agreements and exemption rules.

“While a comprehensive review of the direct tax code may take time, we could see the first steps toward its implementation in this budget. Reducing personal income tax for lower-income groups could provide relief and boost demand,” said Sameer Gupta, country tax leader at EY India.

EY expects strategic reforms to simplify the tax system, reduce litigation and improve services to taxpayers. The note also highlights the importance of encouraging private sector investment, reducing the budget deficit and introducing targeted reforms to foster business innovation.

Read also: LIVE Budget 2025 Updates | Downward revision to GDP growth suggests bleak outlook for budget, Congress says

Last year, the government streamlined capital gains tax by streamlining holding periods and rates. EY expects further measures to address anomalies, such as reducing the holding period for fixed assets from 36 to 24 months in the event of crisis sales and from 24 months to 12 months for unlisted shares in IPO offerings.

EY also recommended prioritizing fiscal consolidation, aiming to reduce the fiscal deficit to 4.5 percent of GDP in FY26 and reduce the debt-to-GDP ratio, which currently stands at 54 .4%, well above the target of 40% under the FRBM.

To achieve a medium-term real GDP growth target of 6.5% or more, EY suggested raising the rate of gross fixed capital formation (GFCF) to 34% through increased capital expenditure, better efficiency and greater investments at the state level.

Boosting private sector investments through gradual reductions in interest rates and accelerated employment programs to support urban demand were also highlighted as critical measures to maintain economic momentum in FY26 .