Assocham recommends LTCG and STT rationalisation, stable tax environment in next Union Budget

New Delhi: The Union Budget 2027-28 needs to create a stable tax environment, reduce litigation, rationalise tax provisions which includes long-term capital gains (LTCG), and strengthen India's competitiveness as a global investment and manufacturing destination, apex industry chamber Assocham said on Thursday.

In its pre-Budget memorandum, the industry body has put forward a comprehensive set of recommendations on Direct and Indirect Tax reforms, calling for a predictable, transparent and investment-friendly tax regime to accelerate India's economic growth, strengthening domestic manufacturing, attract global investments and improve the ease of doing business.

It suggested reducing the LTCG tax rate to 10 per cent for securities held for more than one year but less than two years and introducing a NIL or reduced rate of around 5 per cent for holdings exceeding two years.

Alternatively, a credit for Securities Transaction Tax (STT) against LTCG tax liability has been proposed for long-term holdings.

The industry body believes that rationalising the combined tax burden of LTCG and STT would encourage patient capital, strengthen investor confidence and support India's capital markets.

On the Direct Tax front, Assocham recommended introducing a concessional tax regime for new manufacturing companies, including those operating in strategic sectors such as defence.

The industry body has suggested reintroducing a regime on the lines of “Section 115BAB of the Income-tax Act, 1961,” with reasonable eligibility conditions and a longer operational window to encourage long-term investments, employment generation and export competitiveness.

The industry body called for a distinct asset classification and accelerated depreciation benefits for data centre buildings, fibre-optic infrastructure, cooling systems,and energy-efficient 5G infrastructure.

It has also sought clarity on certain provisions regarding tax certainty for foreign companies procuring data centre services for providing digital content and cloud services through Indian reseller entities, including a reasonable de-minimis threshold for limited direct sales.

It also called for rationalisation of the taxation of long-term capital gains on listed securities to encourage long-term investments and improve capital market participation.

Assocham also recommended reforms in the Minimum Alternate Tax (MAT) regime, particularly for companies who had transitioned to concessional tax regimes prior to 31 March 2026 and units of foreign companies operating in International Financial Services Centres (IFSCs).

Further, Assocham proposed reforms in the penalty framework, including separate proceedings for penalty orders, issue-wise specification of charges and expansion of immunity provisions, and stay of penalty demand till disposal by ITAT.

It has also recommended strengthening the Dispute Resolution Committee by increasing its eligibility threshold from Rs 10 lakh to Rs 10 crore and revamping the Board for Advance Rulings to ensure time-bound and conclusive decisions.

On the Indirect Tax front, Assocham called for a one-time Customs Dispute Resolution (Amnesty) Scheme to resolve legacy disputes, estimated at approximately Rs. 1.5 lakh crore.

To reduce procedural complexities, it has proposed automatic refunds following favourable appellate orders, a uniform pre-deposit mechanism and consolidated assessment, adjudication and appeals for multiple Bills of Entry involving identical issues.

With India's expanding network of Free Trade Agreements (FTAs), Assocham emphasised the need to rationalise origin verification procedures under Section 28DA and CAROTAR, 2020. It has recommended risk-based security requirements, time-bound verification, and acceptance of digitally signed Certificates of Origin to facilitate smoother international trade.

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