Union Budget 2025: An opportunity to initiate legal reforms and sectoral innovations

As India anticipates the Union Budget 2025-26, the country is poised to advance toward its vision of becoming a Viksit Bharat by 2047. The budget is expected to prioritize economic growth, local manufacturing, consumer relief, and job creation, while addressing inflation and fiscal stability.

However, challenges such as high taxes, complex legal processes, and sluggish dispute resolution hinder progress. The current tax system and complex legal frameworks have prompted many citizens and businesses to explore foreign jurisdictions, further emphasizing the need for reform. Transformative reforms are expected to simplify compliance, streamline dispute resolution, and empower key sectors like banking, NBFCs, and infrastructure, fostering a dynamic economy and supporting India’s global standing.

Legal Reforms: Resolving Disputes and Simplifying Compliance

India’s tax landscape is burdened with litigation, holding back over ₹12 trillion in unresolved cases. To address this, Budget 2025 may introduce:

• Fixed Deadlines: Establishing clear timelines for resolving pending tax disputes through appellate authorities like CIT(A) and ITAT.

• Enhanced Dispute Resolution Committee: Introducing arbitration as a mechanism for quicker, out-of-court settlements to reduce judicial pressure.

• Revised Income Tax Framework: A streamlined tax system, with simplified income tax slabs and rationalized TDS rates, reducing compliance complexities and the risk of unnecessary litigation. Proposals include full exemption for incomes up to ₹10 lakh and a new 25% tax bracket for incomes between Rs15 lakh and Rs20 lakh.

The government may also introduce a Customs Amnesty Scheme to resolve long-standing customs disputes, reduce compliance burdens, and further support India’s Make in India initiative. Simplifying the TDS framework, currently riddled with over 35 provisions, could provide businesses with more clarity and ease in operations.

Sectoral highlights: Paving the way for growth

The following changes are expected to shape the future of key sectors in India, boosting economic growth and fostering innovation. These reforms are aimed at improving operational efficiency, increasing investments, and enabling India to become more competitive on the global stage.

• Banking and NBFCs: The government is expected to introduce reforms enhancing NBFCs’ role in infrastructure development through long-term funding mechanisms, streamlined regulations, and support for PPPs, alongside measures to strengthen Asset Reconstruction Companies (ARCs) to boost asset recovery, reduce NPAs, and resolve bad loans efficiently.

• Electric Vehicles (EVs): The EV sector is poised for significant growth, with anticipated expansions in incentives under the FAME scheme, reduced GST rates on EVs and charging infrastructure, and policies promoting domestic battery manufacturing. Simplified and uniform tax structures are also expected to drive further adoption and development in the sector.

• Digital Innovation & Startups: Anticipated measures include higher R&D allocations for AI, blockchain, and quantum computing, reforms to the IT Act, 2000, and enhanced tax incentives to position India as a global tech hub, alongside extended tax holidays under Section 80-IAC, simplified angel tax provisions, and improved funding access for startups through government-backed schemes like SIDBI.

• Real Estate: Reforms to boost the real estate sector include higher tax exemptions for homebuyers and granting industry status to the sector, which would enhance credit access and instil confidence among buyers.

• Environmental Policy: India is set to lead the energy transition, with NITI Aayog crafting guidelines that balance growth, employment, and sustainability. Reforms to the Carbon Credit Trading Scheme (CCTS) are expected to create a strong framework for industries to manage and mitigate CO2 emissions, helping the economy move toward carbon neutrality. The upcoming budget is likely to boost funding for renewable energy projects, supporting India’s goal of achieving 500 GW of non-fossil energy capacity by 2030.

Conclusion

The Union Budget 2025-26 presents a unique opportunity to redefine India’s legal, financial and economic framework, addressing longstanding challenges while paving the way for sustained growth. With expectations of simplified tax structures, faster dispute resolution mechanisms, and strategic investments in key sectors, this budget has the potential to propel India closer to its vision of becoming a global leader by 2047.

The government’s push for ₹12 lakh crore in capital expenditure for FY26 underscores its commitment to driving economic growth. With plans to frontload spending for greater impact, key initiatives such as expanding renewable energy, infrastructure development, and other critical sectors will demand substantial capital outlay. While this ambitious spending strategy aims to propel India’s progress, the pressing question remains: Will it risk a budget deficit? Can the government strike the right balance between fostering growth and maintaining fiscal prudence? As these factors unfold, careful attention will be needed to ensure sustainable development without compromising financial stability.

As the countdown to Budget Day begins, all eyes are on the government to unveil a roadmap that could reshape the nation’s future. The stakes are high, the expectations are higher, and this budget could well be the defining moment in India’s journey toward transformative progress and global leadership.

Anjali Jain is Partner and Drishti Suji is Associate at Areness Law. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.