India Overhauls Tax Rules to Propel Homegrown Accounting Firms onto World Stage
NEW DELHI – The Indian government has unveiled a significant regulatory overhaul aimed at empowering domestic accounting and advisory firms to compete internationally. Announced as part of the Union Budget 2025-26, the reforms target two key areas of tax administration long seen as hurdles for homegrown businesses scaling up globally.
Finance Minister Nirmala Sitharaman, presenting the budget, stated the government will "rationalise the definition of an accountant" under the Income Tax Act's Safe Harbour Rules (SHR). These rules allow taxpayers to adopt pre-approved margins or pricing, which, if followed, shield them from detailed tax scrutiny. The change is framed as a compliance simplification measure directly supporting "home-grown accounting and advisory firms to become global leaders," aligning with Prime Minister Narendra Modi's vision.
Analysts say the revised definition will likely broaden the pool of professionals whose certifications are accepted under SHR, potentially including a wider range of qualified firm partners. This could reduce dependency on a narrow set of designated accountants and streamline cross-border advisory work for Indian firms.
In a parallel, more technical move with far-reaching implications, Sitharaman announced the phasing out of the separate Income Computation and Disclosure Standards (ICDS) regime. Currently, ICDS acts as a parallel set of rules for calculating taxable income, often requiring complex reconciliations with financial statements prepared under Indian Accounting Standards (Ind-AS). This duality has been a persistent pain point, increasing compliance costs and complexity.
From the assessment year 2027-28, the distinct ICDS requirement will be discontinued. To bridge the gap, a joint committee comprising officials from the Ministry of Corporate Affairs and the Central Board of Direct Taxes will work to integrate ICDS provisions directly into the Ind-AS framework. The goal is a unified set of standards for both financial reporting and tax computation, bringing India closer to global practices and reducing compliance burdens.
Industry Impact & Expert Reaction
The moves have been welcomed by the domestic professional services sector, which has long argued for a level playing field against the 'Big Four' and other multinational networks. "This is a decisive step towards building Indian accounting champions," said Rohan Mehta, a partner at Mumbai-based consultancy Aarambh Associates. "Simplifying the Safe Harbour definition reduces friction for our firms advising international clients, while merging ICDS with Ind-AS is a monumental simplification that will free up massive resources currently spent on reconciliation."
Priya Sharma, a tax analyst at a foreign financial institution in Delhi, offered a more measured view: "The intent is positive and aligns with ease of doing business. The success hinges on implementation. The joint committee's work on merging standards will be technically challenging and must ensure the tax base is protected. The market will watch the fine print closely."
A more critical perspective came from Arjun Patel, a freelance commentator on economic policy: "This is tinkering at the edges while ignoring the elephant in the room. The real barriers for Indian firms are capital constraints and global brand recognition. Changing definitions and merging standards are bureaucratic fixes that won't magically create a PwC or Deloitte from India. The government is celebrating procedural changes as strategic victories."
The reforms signal a clear policy shift to nurture national champions in the professional services sector, a space traditionally dominated by global giants. If effectively implemented, they could enhance the operational efficiency and international appeal of Indian accounting firms, though their ultimate impact on the global market structure remains to be seen.