Tax Expert Ajay Rotti's Top 3 Expectations From Union Budget 2025

Swarajya looks ahead to the much-anticipated Union Budget 2025 on the magazine's What This Means podcast, featuring host Diksha Yadav and tax expert and founder and CEO of Tax Compaas Ajay Rotti.

This is an edited transcript of the discussion where Mr Rotti shares his top 3 expectations from the Budget. He also emphasises the need to expand India's tax base and boost manufacturing for growth.

Here's what tax expert has to say:

Diksha: I'll start with the same question we posed in our first episode with Prof Prasanna Tantri. What are your key expectations for this budget? What would be your top two or three priorities for the budget?

Ajay: Since I advise large businesses and companies on taxation, my expectations are primarily from that viewpoint.

Firstly, corporate tax rates have been stable without much tinkering, and tax holidays have been phased out. This has reduced complexities, and I hope that stability and certainty continue.

However, what remains unaddressed is the issue of tax administration and litigation. Tax litigation is one of the largest concerns for businesses, creating uncertainty. This needs urgent attention.

Secondly, from a broader perspective, rationalisation of individual income tax slabs is necessary. While I don't advocate increasing the minimum amount not chargeable to tax — because it's already high compared to our per capita income — there is scope to widen the slabs. For instance, the 30 per cent tax slab could kick in at ₹30 lakhs instead of the current threshold. This would give relief to taxpayers while maintaining the tax base. Increasing the tax base is critical for the economy and businesses, as it boosts disposable income and consumption.

Lastly, procedural issues in GST and income tax compliance need to be addressed. While there have been improvements, compliance is still challenging due to system-generated errors and other inefficiencies. Simplifying compliance will significantly ease doing business.

Diksha: Talking about ease of doing business, while things have improved under the Modi government, but, however, bribes and delays remain significant issues. Where do you think the judiciary stands in this, and what changes could fast-track the litigation cases?

Ajay: Tax litigation is a major pain point, especially for overseas companies and large corporations. Cases often stretch for 15 to 20 years, delaying certainty and closure.

The judiciary is part of the problem. Backlogs, staff shortages, and a lack of specialised tax benches at the tribunal level contribute to delays. Higher courts also face challenges due to limited understanding of tax laws.

Some progress has been made, such as introducing timelines for appellate authority disposal and settlement schemes for smaller cases. However, these timelines are not mandatory, which reduces their effectiveness. Cleaning up the backlog through such schemes and ensuring stricter adherence to timelines will help significantly.

Both taxpayers and the government share responsibility for delays, as adjournments are sought by both sides. Setting deadlines for appeals and reviewing frivolous cases aggressively pursued by tax officers could also make a difference.

Diksha: On personal taxation, many argue that middle-class frustration stems from paying taxes without adequate infrastructure or services in return. How do you see this debate?

Ajay: Technically, taxes aren't directly linked to services — taxation is statutory. That said, the frustration is valid. People often question why they should pay taxes when infrastructure and services are subpar.

The issue isn't high tax rates but the narrow tax base. Only a small percentage of the population pays income tax. In contrast, about 60 per cent of United States' households pay income tax. Expanding the tax base is essential.

Efforts like discouraging cash transactions, better TDS implementation, and increasing the number of tax filers have helped, but there's much more to be done. Increasing compliance among small businesses and freelancers is also critical.

Low income tax collections lead to reliance on indirect taxes like GST, which are easier to collect. Increasing the income tax base would reduce GST reliance and allow for lower GST rates on essentials like health insurance.

Diksha: Net direct tax collections for FY 2024-25 are expected to exceed budget estimates by ₹73,000 to ₹83,000 crores. Why is there such a large gap in projections?

Ajay: Budget estimates are based on assumptions like corporate profits and economic growth. Variations can result from stricter compliance, economic performance, or tax litigation settlements.

Tax collections are recorded on a cash basis, so disputes resolved this year contribute to current collections. These variations are normal, and governments adapt allocations accordingly.

Ajay: Markets won't be stable with so many factors at play — global events like what's happening in the EU, China, and domestically. However, directionally, things look positive. Strong forex reserves, buoyant tax collections, and potential budget measures addressing consumption suggest a good outlook, though some choppiness is expected.

Diksha: What's your take on allowing 100 per cent FDI in the insurance sector? How do you see the state-owned general insurance companies performing?

Ajay: I'm not an expert on the sector, but I believe that insurance, like any other sector — except those strategically important like defense — will eventually need to open up. Competition and FDI will have to come in. Opening up sectors has historically improved them. It also forces Indian companies, including PSUs, to get better.

Global competition brings best practices. I'm not saying we aren't good already, but there’s always something to learn. More competition makes businesses perform better.

For state-owned insurance companies, they are working in their current setup, but opening up will push them to evolve further.

One positive change by the government is reducing the tax-driven investment approach. A generation ago, everyone had multiple LIC policies because they were tax-beneficial. Now, people decide where to invest without government dictation. This shift has pushed state-owned insurers to adapt and compete better.

Personally, I favor opening most sectors to foreign investment, except those critical for national security or strategic reasons.

Diksha: What is the ideal market cap-to-GDP ratio for a country, and specifically for India? There’s a big difference between China (57.5%) and the U.S. (around 200%). India stands at 147.5%. What should this ratio ideally look like for India?

Ajay: I don’t think there’s an ideal ratio. Both market cap and GDP are influenced by many factors, so setting an ideal number isn’t practical. These metrics are different and can’t be directly compared across countries.

India has its unique challenges, such as population and poverty levels that others don’t face. We need to figure out what works for us rather than trying to imitate other countries. Even if an ideal ratio existed, you can’t control market valuations or GDP growth perfectly to achieve it.

Diksha: The RBI, NSO, World Bank, and IMF are projecting India’s growth for this financial year again between 6-7 per cent. Why aren’t we reaching 8 per cent or higher?

Ajay: In my view, the gap lies in manufacturing. While our exports are growing, they are largely services-driven. We remain dependent on imports for manufacturing, which is an area of opportunity.

The PLI (Production-Linked Incentive) schemes have shown results in some sectors. Scaling up manufacturing addresses two things: higher overall growth and better employment generation. Manufacturing setups can create jobs faster than services. Training people for a manufacturing setup is quicker than training for IT or software jobs.

Investing in manufacturing will help us achieve faster growth and solve unemployment challenges.

Diksha: Lastly, the goal is to reach a $10 trillion economy, but we haven’t hit $5 trillion yet. Along with manufacturing, what key changes in the budget or otherwise could help us achieve this?

Ajay: This might not be a popular answer, but I believe administrative reforms are crucial. Policies need to reflect in the way the government functions at the ground level. Bureaucratic behavior and inefficiencies in approvals and processes remain a challenge for businesses.

Ease of doing business isn’t just about rankings — it’s about actual implementation. Addressing these issues can create a conducive environment for entrepreneurs, small businesses, and medium enterprises to grow.

If we want to grow fast — whether to $5 trillion, $10 trillion, or beyond — it’s not just about policy announcements but effective implementation.

Diksha: Absolutely. Any final comments?

Ajay: We’ll wait and see what the budget brings. I always say that we should stop judging budgets solely on tax reductions. A good budget addresses broader issues and makes things easier for everyone.

You can watch the full episode on Youtube: