Budget 2026 Expectations: From income tax to GST to customs, what taxpayers can look out for—A quick take

Taxpayers are looking forward to key changes in Budget 2026 across income tax, GST, and customs. Ahead of the Union Budget 2026–27, Taxmann Advisory and Research has proposed more than 75 key recommendations across income tax, GST and customs, which are expected make compliance easier while attracting investments and creating a stronger business environment for India. Here's a quick take on what taxpayers can look out for in the upcoming Budget:

Income Tax: Streamlining and simplifying

1) Abolition of the old tax regime?

Add Zee Business as a Preferred Source

Taxmann suggests that the government should eliminate the old tax regime because taxpayers prefer the new tax system, which offers simplified rates and reduced tax obligations. The tax system under Section 202 of ITA 2025 solved disputes which caused processing delays for old regime taxpayers, while individual taxpayers now choose the new system as their preferred option.

2) 15% concessional tax for new manufacturing firms

Taxmann recommends that the sunset clause for Section 201 of ITA 2025 corporate tax concession should extend until March 2027 because it will improve domestic manufacturing competitiveness. The initiative will lead to higher sector investments, which will support India's manufacturing development goals.

3) Presumptive tax regime for foreign companies

The advisory recommends a consistent sector-specific tax system for foreign companies, which will help reduce Permanent Establishment (PE) disputes and profit attribution conflicts while increasing investor trust and decreasing legal battles.

4) Clarity on valuation of business benefits and perquisites

Taxmann demands that authorities establish definitive regulations which will assess the fair market value of benefits and perquisites that are taxable under Section 26(2)(f) and TDS under Section 393(1) to achieve consistent results and minimise conflicts.

5) Flexibility for MSE payments

The report proposes an amendment to Section 37(2)(g), which should include standard payment periods that apply to specific industries, together with their payment renegotiation processes, so that businesses can easily deduct their payments to micro and small enterprises.

6) Concessional tax regimes for firms and LLPs

Taxmann indicates that domestic companies currently enjoy reduced tax rates, which should also apply to partnership firms and LLPs in order to create fair taxation standards.

7) Gold stock-in-trade to EGR conversion

The recommendation says that the Electronic Gold ecosystem requires the implementation of tax-free status for registered vault managers who convert physical gold into Electronic Gold Receipt (EGR) products.

8) Dividend income and stock-in-trade shares

Taxmann recommends that tax authorities should categorise dividend income as 'Income from Other Sources' when it does not link to business profits. The tax authorities should treat stock-in-trade shares held for mergers and amalgamations exactly like other exemptions to ensure fair treatment.

9) Advance tax and presumptive schemes

Taxmann recommends that all taxpayers who use additional presumptive schemes should receive the same right as other taxpayers to make their complete advance tax payment through one payment.

Capital Gains: Clarifications needed

10) Excess-premium ULIPs

Taxmann identifies tax treatment uncertainty for ULIPs, which generate income when their premiums surpass 10 per cent of the total assured amount. The organisation recommends that policy classification as capital assets should receive explicit rules from authorities to safeguard against unidentified taxation challenges.

11) Agricultural land exemptions

The advisory proposes that the Section 83 exemption should apply to newly purchased agricultural land which exists until the existing land is retained by the owner until its sale. This change will establish equivalence between agricultural land treatment and residential property capital gains treatment found in Sections 82 and 86.

12) Interest on borrowed capital

The request seeks clarification, which will prevent taxpayers from deducting interest expenses twice because they claim deductions under Section 22(1)(b) and Section 72(3)(a) for their house property capital gains calculations.

13) Capital Gain Account Scheme

The definition of net consideration should undergo revision because it currently requires Capital Gain Account Scheme deposits to be based on stamp duty value instead of actual sale proceeds, which results in litigation over missing value.

14) Joint Development Agreements (JDAs)

Taxmann recommends that the government should establish clear tax rules which will govern capital gains taxes for JDAs which assessors other than Individuals or HUFs enter into.

15) Crypto and Virtual Digital Assets (VDAs)

The advisory requires explanation about how VDAs establish their tax status because it affects Indian taxation rights on non-resident transfer incomes. The ITA 2025 Section 194 currently applies a fixed 30 per cent tax rate, which lacks virtual asset location determination rules, leading to potential legal disputes.

Taxmann advises the government to create specific rules based on HMRC's method, which connects crypto-asset residence to the holder's location.

16) VDA may include Crypto ETFs

The advisory requests confirmation about Bitcoin Spot ETFs and crypto derivatives to determine if these assets belong to the VDA category specified in Section 2(111). Indian investors gained access to multiple Bitcoin investment options after the US SEC approved Bitcoin Spot ETFs.

Taxmann suggests that long-term and short-term capital gains from such ETFs should either fall under VDA provisions or a residuary clause until specific inclusion is notified.

17) Proposal to authorise CBDT on FMV computation

Finally, it recommends empowering the CBDT to prescribe methods for computing fair market value under Sections 76 and 194, addressing the practical difficulties in valuing highly volatile cryptocurrencies.

Charitable Trusts

Taxmann has highlighted several concerns under the ITA 2025 framework for non-profits, which include the following issues.

18) Section 346 breaches

Charitable trusts must follow commercial activity limits because violations lead to two different penalties, which include temporary benefit suspension and total loss of registration rights. The advisory recommends that the 2026 budget establish whether violations lead to annual penalties or permanent registration loss.

19) Residual income

The term remains undefined, which gives tax officers the power to choose its meaning. The advisory recommends either a comprehensive definition or limiting it to notified income categories.

20) Provisional registration without activities

The law permits conversion to regular registration even if charitable activities haven’t commenced, which creates operational contradictions. Taxmann suggests either objective evaluation criteria or deferring conversion requirements until activities commence.

TDS, TCS, and ESOPs

Taxmann also recommends practical amendments to TDS provisions:

21) ESOPs allotted by ex-employers

ESOPs allotted to ex-employees remain taxable as salary perquisites, but their non-monetary nature makes TDS deduction by ex-employers impractical once employment ends. With no salary payments to adjust tax and employers unwilling to bear the liability, the current mechanism becomes ineffective.

The advisory recommends that Section 392 be amended to allow a Section 393/194R–like approach, requiring employers to ensure tax payment by employees before ESOP allotment.

22) TDS on interest from Motor Accident Claims Tribunal awards

Currently, TDS is applied at credit, unlike the previous law, which required deduction only on payment. The advisory recommends aligning TDS with the actual receipt to avoid hardship.

23) CBDT guidelines under Chapter XIX

The binding nature of guidelines has been removed, which creates uncertainty. Taxmann suggests restoring their mandatory applicability for deductors and tax authorities.

24) TDS on payments to partners of firms

Temporary capital withdrawals and remuneration timing create ambiguity. Amendments are needed to remove practical difficulties.

25) Definition of consideration for immovable property TDS

A common definition should be adopted across Sections 53, 78, and 393(1) to ensure consistency.

26) Tax deduction on dividends paid by non-cash modes

The advisory recommends a positive list of acceptable non-cash modes, similar to other provisions, for clarity and compliance.

27) Rationalisation of tax rate on long-term capital gains in the hands of business trusts

A business trust (REIT or InVIT) is accorded a hybrid pass-through status under the Income-tax Act, allowing specified income to be exempt at the trust level and taxable in the hands of unit-holders.

Currently, long-term capital gains covered under Section 198 of ITA 2025 (corresponding to Section 112A of ITA 1961) are taxed at the maximum marginal rate when earned by a business trust, despite such gains being taxable at 10 per cent in the hands of investors.

This results in an unintended tax arbitrage and undermines the pass-through principle.

Recommendation: It is recommended that long-term capital gains covered under Section 198 be taxed at 10 per cent in the hands of the business trust, instead of the maximum marginal rate, to ensure parity and tax neutrality.

28) Alignment of definition of Special Purpose Vehicle (SPV) with SEBI regulations

The 2014 Regulations established SEBI as the governing body for REITs and InVITs, which make direct asset investments and use Special Purpose Vehicles for asset investment.

The Income-tax Act currently defines SPV in two different ways from SEBI regulations.

The Income-tax Act recognises only Indian companies, whereas SEBI allows both companies and LLPs to operate.

REITs need to maintain a controlling interest according to the Income-tax Act, while SEBI regulations do not impose this requirement.

The existing differences between these two systems create confusion, which may lead to authorities rejecting pass-through benefits for income generated from compliant SPVs.

Recommendation: The definition of SPV should be changed through an Income-tax Act amendment to match the SEBI REIT and InVIT regulation definition, which needs to include LLPs and establish united ownership and control standards.

29) Clarification on pass-through of losses for business trusts and securitisation trusts

The Income-tax Act grants pass-through status to business trusts and securitisation trusts for specific income types, but it does not outline loss-handling procedures for these organisations.

The 2019 amendments permit Category I and II AIF investors to receive pass-through losses from their investments.

The absence of similar provisions for business trusts and securitisation trusts creates inconsistency, which results in unnecessary tax complications.

Recommendation: It is recommended that Sections 223 and 221 of ITA 2025 (corresponding to Sections 115UA and 115TCA of ITA 1961) be amended to provide clarity on the pass-through and carry-forward of losses at the investor level, in line with the pass-through framework.

Deductions & Exemptions

30) Extension of the specified mode of payment condition to new businesses

Section 145 of ITA 2025 (corresponding to Section 80JJAA of ITA 1961) allows a deduction in respect of additional employee cost incurred by an assessee engaged in business, subject to specified conditions.

One such condition requires that emoluments be paid through prescribed banking or electronic modes such as account payee cheque, electronic clearing systems, or other notified digital modes. However, this condition currently applies only to existing businesses and not to new businesses.

Recommendation: To further promote the Digital India initiative and ensure uniformity, it is recommended that the condition requiring payment of emoluments through specified electronic or banking modes be extended to new businesses as well.

Other Incomes

31) Exemption of interest on compensation received on motor accident claims

Compensation received on account of motor accident claims is treated as a capital receipt and is not taxable. However, ambiguity persists regarding the taxability of interest awarded for the delayed payment of such compensation.

Judicial precedents have consistently held that such interest does not fall within the definition of 'interest' under the Act. Despite this, partial exemption is currently available only up to a specified monetary threshold.

Recommendation: It is recommended that the Income-tax Act be amended to explicitly exempt the entire compensation amount and any interest received thereon in respect of motor accident claims, thereby removing existing disputes and litigation.

32) Relaxation from Section 102(2) for loans obtained from banks and financial institutions

Section 102 of ITA 2025 provides for taxation of unexplained cash credits, including loans and borrowings. Sub-section (2) requires explanation of the nature and source of such credits by both the assessee and the lender.

This has resulted in genuine hardship where loans are obtained from regulated entities such as banks, NBFCs, and public financial institutions, whose creditworthiness and genuineness are already subject to regulatory oversight.

Recommendation: It is recommended that Section 102 be amended to carve out an exception for loans obtained from banks, NBFCs, and public financial institutions, thereby relieving assessees from onerous compliance requirements in such cases.

Penalties and Prosecutions

33) Clarification on levy of multiple penalties under ITA 2025

Several penalty provisions under ITA 2025 no longer contain the expression 'without prejudice', creating ambiguity regarding the simultaneous applicability of multiple penalty provisions for the same default.

This omission may lead to interpretational disputes, inconsistent enforcement, and increased litigation.

Recommendation: It is recommended that the Act be suitably amended or clarified to explicitly state the legislative intent regarding the levy of multiple penalties for the same default, ensuring certainty and uniform application.

34) Safeguards against withdrawal of start-up deductions

Section 140 of ITA 2025 (corresponding to Section 80-IAC of ITA 1961) provides tax deductions to eligible start-ups. However, the provision does not specify the consequences when post-claim conditions are not fulfilled.

Recommendation: It is recommended that any withdrawal of deduction should be governed by clear statutory safeguards, and deductions already claimed should not be retrospectively withdrawn without due process.

35) Linking prosecution for wilful non-payment of tax with assessment outcome

Section 478 differentiates between a wilful attempt to evade tax and a wilful attempt to evade payment of tax. Logically, prosecution for non-payment should arise only after tax liability is determined.

Recommendation:

It is recommended that:

• Prosecution under Section 478(2) be initiated only after completion of the assessment determining the tax demand
• Such prosecution should not be initiated where appellate relief has been granted to the assessee.

36) Restrict prosecution for non-filing of return to proven wilful defaults

Section 479 provides for prosecution for failure to furnish a return of income. In practice, prosecutions are initiated mechanically, even in genuine hardship cases.

Recommendation: It is recommended that prosecution under Section 479 be restricted to proven cases of wilful default, and exclusions be provided for senior citizens, women taxpayers, and persons below the basic exemption limit.

37) Streamlining provisions relating to prosecution for false statements

Section 482 provides for prosecution for making false statements, even in cases where no tax evasion has occurred.

Recommendation:

It is recommended that:

• The term 'wilfully' be inserted in Section 482 to distinguish intentional misconduct from inadvertent errors
• Prosecution be linked to the outcome of assessment or appellate proceedings, ensuring relief where no tax evasion is finally established.

38) Extend prosecution for falsification of books to all parties involved

Currently, prosecution under Section 483 applies only to the person enabling falsification and not the beneficiary.

Recommendation: It is recommended that prosecution under Section 483 be extended to all parties involved, recognising joint responsibility in facilitating tax evasion.

39) Mandatory show-cause notice before launch of prosecution

While Section 491 mandates sanction prior to prosecution, it does not expressly provide an opportunity of being heard to the assessee.

Recommendation:

It is recommended that:

• A mandatory show-cause notice and opportunity of hearing be provided before sanctioning prosecution
• A clear statutory timeline should be prescribed for the disposal of compounding applications.

Miscellaneous

40) Enabling provision for processing statements filed by non-deductors

Section 399 of the ITA 2025 governs the processing of statements relating to tax deduction at source. However, it does not contain any enabling provision authorising the notification of a scheme for processing statements furnished by persons other than deductors.

Under the ITA 1961, Section 200A(3), inserted by the Finance (No. 2) Act, 2024 (effective 1 April 2025), empowers the CBDT to notify a scheme for processing statements furnished by non-deductors, such as Form 26QF. This reflects a clear legislative intent to extend the processing mechanism beyond deductors.

Recommendation: It is recommended that Section 399 of the ITA 2025 be suitably amended to incorporate an enabling provision similar to Section 200A(3) of the ITA 1961, thereby providing statutory backing for the processing of statements filed by non-deductors and ensuring continuity and certainty under the new Act.

41) Definition of the term ‘violation’ for filing updated returns

Section 263(6)(c)(vi) of the ITA 2025 restricts the filing of an updated return where the Assessing Officer possesses information indicating a “violation” of specified laws, and such information has been communicated to the taxpayer.

While this represents a refinement over the ITA 1961 by narrowing the scope of restriction, the term 'violation' itself remains undefined, which may lead to interpretational disputes regarding the degree of certainty or finality required.

Recommendation: It is recommended that a clear definition or explanatory clarification of the term 'violation' be provided to ensure consistent application, reduce interpretational ambiguity, and prevent arbitrary denial of the updated return facility.

42) Scope and objectives of faceless schemes under ITA 2025

Section 532 of the ITA 2025 consolidates the power to notify faceless schemes under a single provision. While this represents structural simplification, the provision omits explicit reference to objectives such as team-based functioning and dynamic jurisdiction, which were integral to the faceless framework under the ITA 1961.

The omission may constrain the design and scope of future faceless schemes.

Recommendation: It is recommended that Section 532 be amended or clarified to expressly include team-based functioning and dynamic jurisdiction as stated objectives, thereby ensuring continuity with the faceless regime under the ITA 1961.

43) Delay in handing over seized material beyond 60 days should not invalidate the search

Section 251(1) of the ITA 2025 requires seized assets to be handed over to the jurisdictional Assessing Officer within 60 days where the authorised officer lacks jurisdiction. However, the Act does not clarify the consequences of non-compliance.

Judicial precedent has held that this time limit is administrative in nature and does not vitiate the search.

Recommendation: It is recommended that a clarificatory amendment be introduced stating that a delay beyond 60 days shall not invalidate the search proceedings.

44) Prescribing time limit for the supply of seized documents to the assessee

While the ITA 2025 provides for the supply of copies of seized documents, no time limit is prescribed, resulting in undue hardship to assessees.

Recommendation: It is recommended that a specific time limit be prescribed for providing copies of seized books of account and documents to ensure procedural fairness and effective representation.

45) Tax recovery mechanism on the sale of securitised assets

In cases of recovery through securitisation, tax dues often remain unrecovered as sale proceeds are appropriated by banks or ARCs, and borrowers are financially distressed.

Recommendation: It is recommended that an appropriate statutory mechanism be introduced to secure recovery of tax dues in cases involving the sale of securitised assets, either from the borrower or, where recovery is not feasible, from the bank or ARC.

46) Insertion of the definition of ‘Government Employee’

The Income-tax Act does not define the term 'government employee', leading to inconsistencies in the availability of exemptions between government employees and employees of government-aided institutions.

Recommendation: It is recommended that a clear definition of 'government employee' be inserted to ensure uniform tax treatment and reduce interpretational disputes.

GST & Customs

47) Rationalisation of blocked input tax credit under GST

Section 17(5) of the CGST Act blocks ITC on several categories of business expenditure.

Recommendation: It is recommended that blocked credits under Section 17(5) be revisited and aligned with the Income-tax Act, allowing ITC on legitimate business expenditures.

48) Annual ITC matching instead of monthly comparison

The current system mandates monthly reconciliation between GSTR-2B and GSTR-3B, despite the law permitting ITC availment up to November of the subsequent year.

Recommendation: It is recommended that ITC matching and issuance of notices be undertaken on an annual basis, with suitable amendments to GSTR-9 and GSTR-9C.

49) ITC on transfer of exempt intermediate goods to distinct persons

Transfer of exempt intermediate goods between distinct persons results in denial of ITC, even where the final product is taxable.

Recommendation: It is recommended that a specific provision be introduced to allow ITC in such cases, avoiding tax cascading and additional business costs.

50) Rationalisation of ITC conditions under Section 16(2)

The current framework places the burden of supplier compliance entirely on the recipient.

Recommendation:

It is recommended that:

• ITC should not be denied solely due to supplier default, where the transaction is genuine
• Recovery should first be initiated against the supplier
• ITC should be restored upon subsequent recovery of tax from the supplier.

51) Utilisation of ITC for reverse charge payments

Mandatory cash payment under RCM results in avoidable cash blockage.

Recommendation: It is recommended that the ITC balance be allowed to be utilised for payment of RCM liabilities.

52) Inter-state transfer of input tax credit

Currently, ITC transfer is permitted only within the same State.

Recommendation: It is recommended that a mechanism be introduced to allow inter-State transfer of accumulated ITC, especially in cases of merger, restructuring, or relocation.

53) Refund of unutilised ITC

Refund of ITC is currently restricted to limited cases.

Recommendation:

It is recommended that provisions be introduced to allow:

• Refund of unutilised ITC at the end of the financial year
• Refund of accumulated ITC upon business closure

54) ITC utilisation by E-commerce operators under Section 9(5)

Restrictions on ITC utilisation for liabilities under Section 9(5) lack statutory backing.

Recommendation: It is recommended that clarity be provided to align ITC utilisation with the legislative framework, removing unintended restrictions.

55) GST applicability on Crypto and NFT transactions

GST treatment of VDAs remains unclear.

Recommendation: It is recommended that specific GST provisions be introduced for VDAs, aligned with global best practices.

56) Enabling the splitting of composite supply in healthcare services

GST on room rent above Rs 5,000 contradicts the principle of composite supply.

Recommendation: It is recommended that the exemption entry be revisited to remove GST on room rent, as artificial splitting of composite supply is impermissible.

57) Single National-Level CGST account

State-wise CGST balances lead to inefficiencies for multi-State businesses.

Recommendation: It is recommended that a single national-level CGST account be introduced to allow seamless utilisation of credits across States.

58) Inclusion of ATF and natural gas under GST

Gradual inclusion of petroleum products remains pending.

Recommendation: It is recommended that ATF and natural gas be brought under GST through a phased approach, paving the way for broader inclusion.

59) No interest or penalty where IGST is paid but credited to the wrong state

Interest and penalty are levied despite revenue neutrality.

Recommendation: It is recommended that Section 77 be expanded to cover cases where IGST is paid but credited to an incorrect State, with no levy of interest or penalty where tax has already been discharged.

60) Facility to revise GST returns

Under the existing GST framework, returns once filed cannot be revised. This rigidity results in bona fide errors or omissions remaining uncorrected, leading to avoidable disputes, demands, and litigation.

The absence of a revision mechanism is inconsistent with the erstwhile VAT regime, which permitted rectification of inadvertent mistakes. Introducing a revision facility would promote accuracy, transparency, and voluntary compliance without adversely impacting revenue.

Recommendation: It is recommended that suitable statutory provisions be introduced to allow revision of GST returns, including GSTR-1, GSTR-3B, GSTR-9 and GSTR-6, within a prescribed time limit and subject to appropriate safeguards.

61) Clarity on supply by EV charging stations

The GST treatment of supplies made by EV charging stations remains ambiguous, particularly with respect to classification, taxability, and applicable rates.

A key issue is whether such supply constitutes a supply of goods or services. Further ambiguity exists on whether EV charging amounts to the supply of electricity (which is exempt from GST) or a taxable supply under HSN 8504, attracting GST at 5 per cent.

Additionally, EV charging at residential premises is exempt from GST, whereas charging at commercial stations is taxed, resulting in inconsistent treatment of identical end use and creating a dual tax structure that burdens consumers.

Globally, courts such as the European Court of Justice in Digital Charging Solutions have recognised electricity supplied for EV charging as a supply of goods.

Recommendation: It is recommended that the supply by EV charging stations be explicitly clarified as a supply of electricity and exempt from GST, aligning domestic policy with global practices and supporting EV adoption.

62) Inclusion of inter-state RCM transactions under the ISD mechanism

With effect from April 1, 2025, ISD registration has been made mandatory for common offices receiving common ITC for deemed distinct persons. Current provisions allow the distribution of ITC for intra-state RCM services but exclude inter-state RCM transactions.

The 55th GST Council has recommended extending the ISD mechanism to inter-State RCM supplies.

Recommendation: It is recommended that Sections 2(61) and 20 of the CGST Act and Rule 39 of the CGST Rules be amended to include inter-State RCM supplies under Sections 5(3) and 5(4) of the IGST Act, with effect from April 1, 2025.

63) Rationalisation of the refund formula for exports under CIF contracts

Rule 89(4) of the CGST Rules limits zero-rated turnover to the FOB value, even where exports are made under CIF contracts. This results in proportionate denial of refund attributable to insurance and freight components.

This leads to permanent loss of ITC, particularly where logistics costs form a significant portion of transaction value.

Recommendation: It is recommended that the refund formula under Rule 89(4) be rationalised to allow CIF value for CIF exports, ensuring full refund of eligible ITC.

64) Extension of IDS refund to input services and capital goods

The current IDS refund framework restricts ‘Net ITC’ to input goods, excluding input services and capital goods. This leads to accumulation of blocked credits, particularly affecting MSMEs.

Recent GST rate rationalisation has exacerbated inverted structures without corresponding input rate adjustments.

Recommendation: It is recommended that Rule 89(5) be amended to include input services and capital goods within ‘Net ITC’ for IDS refunds, aligning with GST’s principle of tax neutrality.

65) IDS refund where inputs and outputs attract the same GST rate

Refunds are frequently denied where certain inputs are taxed at higher rates, even though the principal input and output attract the same GST rate.

Judicial precedents, including Indian Oil Corporation Ltd (Karnataka HC), support a purposive interpretation of IDS provisions.

Recommendation: It is recommended that clarificatory amendments be introduced to allow IDS refunds where accumulation arises from the rate structure, even if the principal input and output attract the same rate.

66) Review of blocking of electronic credit ledger with zero or negative ITC

Rule 86A has been used to block ECL balances in excess of available credit, effectively freezing future credits and causing severe liquidity stress.

Judicial rulings, including Kings Security Guard Services (P) Ltd, have clarified that Rule 86A is not a recovery mechanism.

Recommendation: It is recommended that Rule 86A be clarified to prohibit negative or prospective blocking of ITC, while retaining safeguards for genuine fraud cases with due process.

67) Judicious application of powers to arrest under GST

Section 69 permits arrest based solely on the Commissioner’s 'reason to believe', without adequate procedural safeguards, leading to concerns of misuse.

The Supreme Court has cautioned against coercive recovery practices.

Recommendation: It is recommended that prior approval of the Principal Chief Commissioner be mandated for arrests, supported by written justification and evidence.

68) Explicit specification of offences under Section 132

Clauses (h), (i), and (l) of Section 132(1) are overly broad and do not require intent to evade tax, enabling arbitrary prosecution.

Recommendation: It is recommended that these clauses be deleted or replaced with civil penalties, reserving criminal prosecution for deliberate tax evasion cases.

69) Malicious intent should be the basis for a penalty

Clause (c) of Section 132(1) penalises ITC availed without considering malicious intent.

Recommendation: It is recommended that the term 'fraudulently' be inserted in clause (c) or that the clause be restricted to intentional misconduct, with token penalties for inadvertent errors.

70) No criminal proceedings for self-rectified defaults

Criminal proceedings may be initiated even where defaults are voluntarily corrected before initiation.

Recommendation: It is recommended that criminal action be restricted to continuing defaults, with self-rectified cases subject only to nominal penalties.

Customs Laws

71) Improvements in the AEO scheme

AEO Tier-2 and Tier-3 entities demonstrate high compliance but face limited benefits.

Recommendation:

• Duty deferment be extended from 15 to 30 days
• Pre-deposit requirements for appeals be reduced for AEO Tier-2 and Tier-3 holders.

72) Simplified AEO continuity for merged tier-2 entities

Reapplication for AEO status post-merger causes disruption where both entities already hold Tier-2 status.

Recommendation: It is recommended that AEO Tier-2 status automatically continue for merged entities upon intimation, without a fresh application.

73) Clarity on the definition of beneficial owner under customs

The definition of 'beneficial owner' lacks operational clarity, leading to interpretational disputes.

Recommendation: It is recommended that guidelines be issued clarifying the application of the beneficial owner concept vis-à-vis importers and exporters.

74) Introduction of an incentive scheme for services exports

With the withdrawal of SEIS, service exporters lack targeted support amid the global slowdown.

Recommendation: It is recommended that a PLI-style incentive scheme be introduced for services exports, particularly for R&D and business support services.

75) Validity of advance rulings under customs

Advance rulings lapse after three years, even when no change in law or facts occurs.

Recommendation: It is recommended that the three-year validity limit be removed, ensuring continuity and certainty.

76) Comprehensive tax amnesty scheme under customs

Numerous customs disputes remain pending, burdening taxpayers and courts.

Recommendation: It is recommended that a customs-specific amnesty scheme be introduced, offering waiver of interest and penalties, similar to SVLDRS or Vivad Se Vishwas.