The Institute of Chartered Accountants of India (ICAI) has proposed introducing optional joint tax filing for married couples in India, potentially transforming how households manage their tax obligations. The proposal comes ahead of Union Budget 2026-27, which Finance Minister Nirmala Sitharaman will present on February 1, 2026.

Currently, India's income-tax system operates on individual taxation principles, with separate exemption limits and deductions for each taxpayer. Marriage does not alter this treatment, requiring spouses to file and pay taxes independently despite most households functioning with shared incomes and financial priorities.

ICAI's Joint Filing Framework

The proposed system would allow married couples with valid PANs for both spouses to file joint returns and choose combined taxation. Taxpayers would retain flexibility to continue under the existing individual taxation system if preferred.

Under ICAI's framework, the basic exemption limit would be doubled for joint filers, with tax slabs expanded proportionally to accommodate combined household income. The structure ensures income up to ₹8.00 lakh remains tax-free, while the top rate of 30% applies to combined income exceeding ₹48.00 lakh.

Benefits for Single-Income Families

The joint filing system primarily benefits households where one spouse earns significantly more than the other. Under current rules, a non-earning spouse's basic exemption limit and lower tax slabs remain unutilized. Joint filing would unlock this capacity through income averaging, potentially reducing overall family tax liability.

Couples could also maximize deductions on home loans, health insurance premiums, and other eligible tax-saving investments more effectively. The system encourages cohesive household financial planning and simplifies investment structuring, according to tax experts.

Expert Perspectives and Limitations

Priyal Goel Jain, CA and partner at Dinesh Aarjav & Associates, highlights that joint filing aligns with the government's vision of a simplified tax regime with minimal deductions and cleaner slab-based taxation. Retired couples would particularly benefit from smoother taxation of pension and investment income, reducing complex tax arbitrage needs.

However, joint filing may not always prove tax-effective, especially when both spouses are high income earners. Combined income could push couples into higher tax brackets or surcharge categories, potentially increasing their overall tax burden.

Budget Timeline and Implementation

Parliament's budget session begins January 28, 2026, and continues until April 2, 2026. The proposal follows practices already established in countries like the United States and Germany, where joint filing for married couples represents standard practice. The optional nature of the proposed system ensures couples can choose the most beneficial taxation method for their specific circumstances.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.