With 2025 Union Budget on the horizon, the conversation around tax reform is intensifying. A simplified tax regime isn’t just about improving taxpayers’ experience, it is also a strategic move to unlock economic potential, improve compliance and enhance financial planning. Here are five key areas where changes can benefit individual taxpayers:
A seamless taxpayer
experience
For individual taxpayers, filing tax returns often feels like a race against time. The current system, with Form 16 issued by June 15 and the filing deadline set for July 31, provides a narrow compliance window. Extending or optimising these deadlines could reduce stress and improve accuracy.
Timely updates to crucial forms such as Form 26AS, Annual Information Statement (AIS) and Tax Information Statement (TIS) can facilitate smoother filing. The recent reduction of e-verification timeline from 120 days to 30 days has added urgency and hence, a more balanced timeframe could provide greater flexibility.
Additionally, extending the existing deadline of Dec 31 for filing revised returns to a later date, would give taxpayers more time to accurately report foreign income and claim foreign tax credits as financial year in many countries ends on Dec 31.
Addressing occasional technical challenges in the e-filing portal, such as slow response times and timeouts, would further enhance the experience. Greater transparency in offsetting refunds against outstanding demands would also help taxpayers manage their finances more effectively.
Turning taxes into tangible benefits
Demonstrating tangible benefits from tax revenues can foster a positive approach to taxation. When taxpayers see their contributions translate into improvements, compliance increases. For consistent taxpayers, personalised benefits at an individual level would further boost individual taxpayer’s morale. The benefits could be in the form of priority services at govt offices, access to premium public facilities, benefits like vouchers, certificates or discounts on passport renewal fees, vehicle registration fees, govt-backed health insurance schemes, airfare, rail passes, fuel vouchers or free/reduced entry fee to national parks, museums, etc.
Revamping housing loan deductions
Home-ownership is a significant financial milestone and tax benefits should align with this commitment. Under the old tax regime, the existing Rs 2 lakh cap on housing loan interest deductions for self-occupied properties may no longer reflect current economic realities.
A revised deduction limit, better suited to contemporary property values and interest rates, could provide meaningful relief to homeowners. Encouraging home-ownership through well-structured tax relief measures can also contribute to economic stability and financial security for individuals.
Allowing losses from house property to be set-off against income from other heads in the new tax regime can lead to faster adoption of the new regime.
Making ESOP taxability uniform for all organisations
Employee Stock Ownership Plans (ESOPs) are a popular mechanism for companies to offer their employees a stake in the business. Traditionally, ESOPs have been used as a tool to attract and retain talent by offering the promise of future wealth without immediate cash outlay. However, the tax implications of ESOPs can be complex and burdensome, particularly when it comes to the timing of tax payments. Currently, the benefit of deferring tax payment on ESOPs to the stage of sale (as against exercise stage) is available only for employees of eligible startups.
There is a growing argument that this deferment should be extended to employees of all organisations (at least for unlisted companies), where ESOPs are not a liquid asset until listing occurs (unlike in listed companies, where employees can liquidate anytime).
Such a change will lead to tax payment being aligned with actual gain.
Strengthening Faceless Assessment Scheme
The Faceless Assessment Scheme has transformed the tax administration process by promoting transparency and accessibility. However, some operational challenges, such as high pendency at Commissioner of Income Tax (Appeals) and procedural bottlenecks, need refinement.
Introducing measures like a First-In-First-Out (FIFO) system for pending cases, leveraging pre-submitted documents effectively and strengthening grievance re-dressal mechanisms can further streamline the system.
Expanding appellate capacity and refining the scheme’s functionality, along with periodic status updates on assessments and appeals could improve transparency and compliance.
Additionally, for cases with lower disputed tax amounts (a threshold could be defined based on returned/assessed income), if the appeal is not disposed of within a defined period (for example, two years) for no fault of the taxpayer, it could be deemed allowed.
(The writers are tax partners, EY India; Views expressed are personal)