India Tax Reforms: Budget 2026 Faces Industry Pressure

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AuthorAnanya Iyer|Published at:
India Tax Reforms: Budget 2026 Faces Industry Pressure
Overview

As India approaches the April 2026 implementation of its New Income Tax Act and the February 1, 2026, Union Budget, industry leaders are amplifying calls for substantial tax reforms. A pre-Budget survey by KPMG in India highlights widespread demand for increased salaried standard deductions, revival of manufacturing incentives, and a significant overhaul of compliance and litigation processes. These expectations signal a pivotal moment for the nation's fiscal policy and business environment.

1. THE SEAMLESS LINK

This strong push for tax reform is framed by the upcoming fiscal calendar, with the Union Budget on February 1, 2026, set to address critical aspects of the economy before the New Income Tax Act takes effect in April 2026. The survey's findings represent a clear mandate from businesses seeking greater predictability and relief in tax policy to stimulate investment and ease operational burdens. With Finance Minister Nirmala Sitharaman preparing to present her ninth budget, market watchers are scrutinizing the government's response to these pressing industry concerns.

Sectoral Stimulus and Policy Stability Demands

Industry stakeholders are urging a reintroduction of manufacturing-linked incentives, with 34% advocating for a revival of tax benefits akin to the former 115BAB regime. Furthermore, half of the respondents emphasized the need for targeted, sector-specific incentives to foster innovation and investment. Financial services emerged as the top priority sector at 17%, followed by technology and industrials. The demand for extending R&D weighted deductions also points to a desire for updated stimulus measures. Beyond direct incentives, 51% of respondents called for policy stability for GIFT City's International Financial Services Centre (IFSC), opposing sunset clauses on exemptions to provide long-term clarity for investors.

Overhauling Compliance and Litigation Bottlenecks

Significant concerns persist regarding tax compliance and litigation. The KPMG survey identified key issues such as the consolidation of TDS/TCS rates (67%), delays in assessment proceedings (62%), and revisions to capital gains tax rules (50%). Over half of the participants demanded mandatory appeal disposal timelines at the CIT (Appeals) level, where an estimated 90% of cases are currently pending. In a move to alleviate the burden on smaller firms, 71% called for a revamp of transfer pricing safe harbour rules, and over 75% supported increasing the TP documentation threshold from ₹1 crore to ₹5 crore. The Goods and Services Tax (GST) Invoice Management System (IMS) also drew criticism, with 82% of respondents highlighting issues with mismatched credit notes, signaling a need for simplification and reduced compliance friction.

Market Dynamics and the Digital Entertainment Sector

Companies operating within India's dynamic digital entertainment sector, such as Netflix, face an environment shaped by these evolving economic and regulatory landscapes. As of January 27, 2026, Netflix's stock was trading around $85.70 with a market capitalization of approximately $363.14 billion. The streaming giant's Price-to-Earnings (P/E) ratio stood at approximately 33.91, which is notably below the industry median of 16.98, suggesting a potentially lower valuation relative to its earnings compared to peers. Netflix India has become a key growth market, reportedly adding nearly 20 million subscribers and generating revenue close to ₹4,000 crore annually. The company has invested significantly in local content, planning 25 new Indian titles in 2025, a strategy that has contributed to its profit growth. However, this market is intensely competitive, with players like JioHotstar, Amazon Prime Video, and the Reliance-Disney Viacom18 group aggressively expanding their offerings. For international players like Netflix, tax certainty and a streamlined business environment are critical for sustained investment and operations. The industry's calls for tax reform and policy stability directly impact the operating conditions for such digital service providers, influencing their long-term growth strategies and profitability in one of the world's largest digital consumer markets.

Outlook for Budget 2026

KPMG leaders Akhilesh Tuteja and Sunil Badala interpret these survey findings as critical signals for Budget 2026-27, emphasizing the imperative for simplification, export diversification, and targeted incentives to unlock capital expenditure. Market watchers will closely monitor whether the forthcoming budget addresses pending disputes, provides boosts to IFSC policies, and introduces meaningful tax relief for both salaried individuals and businesses, thereby shaping India's economic trajectory.

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