Budget 2026–27 should clear tax backlog, simplify compliance, and boost manufacturing, says FICCI — Key takeaways

The Federation of Indian Chambers of Commerce and Industry (FICCI) has called on the government to prioritise clearing the massive tax-appeal backlog, simplify tax deduction at source (TDS) rules, and improve supply-chain facilitation in the upcoming Union Budget 2026-27. The chamber said these measures are vital to improve ease of doing business and attract long-term investment.

Tax appeals pile-up needs urgent attention

According to FICCI, over 5.4 lakh tax appeals involving disputed demands of about Rs 18.16 lakh crore were pending before Commissioners of Income Tax (Appeals) as of April 1 this year. The industry body blamed the transition to the faceless appeals regime for procedural delays and repeated notices.

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FICCI has proposed a two-track system - fast-track for small or simple cases and detailed review for complex ones, to speed up dispute resolution. It also recommended filling at least 40 per cent of vacant posts at the appeal level and setting up technical support units to assist with virtual hearings.

The chamber further suggested that taxpayers waiting more than two years for an appeal decision, without fault of their own, should automatically get a stay on demand and refund of any tax recovered.

Unlocking working capital stuck in litigation

The current rule requiring taxpayers to pay 20 per cent of disputed demand to obtain a stay locks up significant working capital, FICCI noted. It urged the government to allow bank guarantees or indemnities instead of cash payments, similar to global practice.

The industry group also sought real-time coordination between stay orders and refund processing by the Central Processing Centre to avoid unnecessary withholding of refunds.

The body urged the finance ministry to explicitly recognise fast-track de-mergers under the Income-tax Act 2025 to ensure companies can restructure efficiently without fear of additional tax liability.

Simpler TDS regime and relief for manufacturers

FICCI pointed out that there are currently around 37 TDS provisions with rates varying from 0.1 per cent to 30 per cent, leading to confusion and compliance burden. It suggested consolidating these into a few standard rates and exempting business-to-business payments already covered under the Goods and Services Tax (GST) framework.

The chamber also raised concerns that foreign companies supplying raw materials or components to Indian contract manufacturers risk being deemed to have a “business connection” in India, which could attract unintended tax liability. It recommended amending the law to exclude such storage or supply arrangements from tax exposure if they are purely for export or assembly purposes.

Call for customs reforms and digital access

In the customs sector, FICCI said the limited presence of the Customs Authority for Advance Rulings (CAAR), currently in New Delhi and Mumbai - is inadequate. It proposed establishing at least two more regional offices in the south and east to serve major ports.

It also called for a centralised digital portal to publish all customs trade notices in real time and proposed that newly incorporated group companies be allowed to apply for Authorised Economic Operator (AEO) status if other group firms already hold such certification.