Speaking to CNBC-TV18, Dinesh Kanabar, Chairman and CEO of Dhruva Advisors, said that while India has made significant progress on the legislative front, the real challenge now lies in implementation and certainty.
“We have a new Income Tax law coming into effect from April 1, 2026, and several changes have also been made on the GST side. The legal framework is largely in place, tax rates are reasonable, and capital gains taxation has been rationalised. That is not the challenge. The challenge is tax administration,” Kanabar said.
Need for certainty in tax interpretation
Kanabar pointed out that inconsistent interpretation of tax laws by assessing officers remains a major pain point for businesses, hurting predictability and investor confidence.
“One thing that ails the law is the lack of certainty. The same provision or the same tax treaty is interpreted differently at different points in time by different officers. Businesses do not know whether their tax position will be accepted or challenged,” he said.
He also flagged structural limitations that prevent the Central Board of Direct Taxes (CBDT) from issuing binding interpretative guidance.
“You do not have a centralised administration in that sense. There is a specific provision in the Income Tax Act that does not permit the Board to give directions on how a matter should be disposed of. That provision is a relic of the British era,” Kanabar said.
Push for further TDS rationalisation
Dhruva Advisors has reiterated its demand for simplifying the TDS framework, arguing that multiple withholding tax rates continue to create unnecessary disputes despite some rationalisation in recent Budgets.
“When a person deducts tax at source, they are not paying their own tax. They are acting as an agent of the government. Why should there be litigation over whether tax was deducted at the correct rate?” Kanabar said.
He suggested a three-rate structure for TDS to reduce interpretation-related disputes.
“Our recommendation is to have just three rates—one for salary, one uniform rate for most transactions, and a higher or punitive rate for specific categories such as crypto or racehorse winnings. Multiple rates require interpretation of whether something is a works contract or a professional service, and that creates issues,” he said.
Relevance of TCS under GST questioned
Kanabar also questioned the continued relevance of the Tax Collected at Source (TCS) mechanism in an era where GST provides granular transaction-level data.
“TCS was introduced as a tracking mechanism. Today, with GST capturing transactions comprehensively, the authorities already have the data. The question is whether provisions like TCS on car purchases, real estate, or overseas remittances are still necessary,” he said.
He added that high TCS rates on certain foreign remittances may need reconsideration.
“When TCS goes up to 20% for overseas remittances, one has to ask whether that level of collection is really required,” Kanabar noted.
Tax incentives sought for AI, semiconductors and R&D
On the government’s push for AI and advanced manufacturing, Kanabar said tax policy must actively support private sector investment in research and development.
“India wants to invest in artificial intelligence and semiconductor technology. At the same time, there could be a reverse brain drain with highly skilled professionals relocating to India,” he said.
Highlighting India’s low R&D spend, Kanabar said the country lags far behind global peers.
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“Globally, R&D spending is around 4–6% of GDP. In India, it is barely 0.2–0.3%. That needs to increase significantly,” he said.
He argued that targeted tax incentives for R&D are essential, especially as innovation is a long-term and high-risk endeavour.
“Research does not give immediate results. It can succeed or fail. That is precisely why incentivising R&D is critical, even for manufacturing. If India has to be innovative in manufacturing, research has to happen,” Kanabar said.
Watch accompanying video for entire conversation.
