FICCI Urges Tax Reforms and Customs Facilitation in Budget 2026 for Enhanced Business Growth, ETCFO

As preparations for Union Budget 2026–27 gather pace, industry body FICCI has urged the government to address long-pending tax and trade bottlenecks, calling for faster dispute resolution, rationalisation of withholding tax provisions, and improved customs facilitation to strengthen India’s ease of doing business framework.

A key focus of FICCI’s recommendations is the sharp rise in tax litigation and working capital blockage, which it says has emerged as a major constraint for businesses despite improvements in compliance digitisation.

Direct tax reforms: Focus on disputes, certainty and compliance

FICCI has called for urgent steps to reduce pendency before the Commissioner of Income Tax (Appeals) and to allow refund of taxes collected during the pendency of appeals. According to the industry body, prolonged delays undermine the effectiveness of the faceless appeal system and lock up significant funds, causing hardship to taxpayers. “Timely resolution of appeals and release of refunds during pendency is critical to restoring confidence in the tax administration and easing liquidity stress for businesses,” FICCI said in its Budget submission.

The chamber has also sought rationalisation of stay of demand provisions, recommending that taxpayers be allowed to obtain a full stay on disputed tax demands during appeal proceedings, subject to safeguards. This, it said, would unlock amounts stuck in litigation without adversely impacting revenue collection.

To support corporate restructuring, FICCI has asked for tax neutrality for fast-track demergers, under the new Income-tax Act framework. Providing clarity on tax treatment, it said, would encourage small and mid-sized companies to undertake intra-group restructuring while reducing the burden on the National Company Law Tribunal.

On compliance, FICCI has reiterated the need to simplify TDS provisions, arguing that the current rate structure increases compliance costs and leads to litigation over characterisation of payments.

The industry body has also flagged concerns under international taxation, seeking clarity that storage of raw materials, components, or free-of-cost equipment by non-residents in India for just-in-time manufacturing should not trigger a business connection. According to FICCI, this clarification would strengthen India’s contract manufacturing ecosystem and improve supply chain efficiency.

In addition, FICCI has recommended restoring the Associated Enterprise definition in the new tax law in line with the existing framework to avoid unintended transfer pricing disputes. It has also sought parity in taxation of share buybacks and capital reduction, particularly for buybacks funded through share premium or fresh issues.

Customs and trade facilitation

On indirect taxes, FICCI has proposed expanding the number of Customs Authority for Advance Rulings (AAR) offices to improve certainty and reduce litigation in cross-border trade.

It has also recommended extending Authorised Economic Operator (AEO) benefits to newly incorporated or restructured group companies, especially where other group entities already hold AEO certification.

“Trade facilitation measures such as broader AEO recognition and faster advance rulings can significantly reduce compliance delays and enhance India’s export competitiveness,” FICCI said.

Finally, the industry body has called for centralising Customs Trade Notices into a real-time, web-based database, arguing that uniform access to trade instructions would improve transparency and ensure consistent assessment practices across ports.

Taken together, FICCI said these reforms would help reduce litigation, unlock capital, and create a predictable regulatory environment, enabling businesses to focus on growth and investment rather than procedural friction.

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