Wednesday, 15 January 2025 | New Delhi, India
As India gears up for the Union Budget 2025-26, the US-India Tax Forum—a dedicated Tax Policy Forum of the US-India Strategic Partnership Forum (USISPF)—has submitted a comprehensive set of recommendations aimed at enhancing India’s global economic competitiveness. With around 200 member companies, the Forum enables focused discussion on important advocacy areas across tax regimes in India, bringing Government of India policymakers, global tax experts, and the business community at large to champion forward-looking tax policies.
The Tax Forum hosted several member consultations and, at the invitation of the Ministry of Finance, presented its recommendations on three occasions regarding the Union Budget 2025-26. USISPF extends its sincere gratitude to the Government of India for the opportunity to discuss these recommendations and shape forward-looking policy reforms.
The recommendations underscore the importance of bold reforms to attract fresh investments, strengthen key industries, and elevate India’s position as a premier global growth driver. It offers a blueprint for the reforms that can enhance transparency, reduce complexities, and help unlock the country’s full economic potential.
Key Recommendations:
1. Revolutionizing Direct Taxation: From Complexity to Competitiveness
- Simplifying Tax Deduction at Source (TDS): Streamline the TDS structure to two or three rates, reducing compliance burdens and enabling businesses to focus on growth.
- Ensuring Parity in Taxation: Align tax rates for foreign bank branches with those of domestic banks to attract foreign investment and enhance competitiveness. Introduce a concessional 10% tax rate on dividend income for Foreign Portfolio Investors (FPIs) to boost capital inflows.
- GIFT City as a Global Financial Hub: Exempt dividends for shareholders in GIFT City and offer tax exemptions on financial transactions to position it as a central hub for multinational corporations.
- Streamlining Transfer Pricing Frameworks: Expand Safe Harbor Regulations (SHR) and accelerate the Advance Pricing Agreement (APA) process to create a predictable and transparent tax environment.
2. Driving Sectoral Growth: Manufacturing, Healthcare, and Renewable Energy
- Advanced Manufacturing: Extend concessional tax rates for greenfield manufacturing beyond March 2024 to attract investments in high-growth industries like renewable energy, semiconductors, and electric vehicles. Additionally, introducing a reduced 15% tax rate for Maintenance, Repair, and Overhaul (MRO) firms to strengthen post-manufacturing services, ensuring a robust and sustainable industrial ecosystem
- Healthcare Accessibility and Affordability: Reduce tariffs on critical life-saving drug, including cancer treatments, vaccines, and medicines for chronic diseases and continue exemptions for certain drugs under Patient Assistance Programs (PAP) to ensure equitable access to healthcare.
- Empowering Renewable Energy: Provide targeted incentives for renewable energy manufacturers and facilitate electric vehicle adoption to reinforce India’s commitment to sustainability while stimulating job creation and technological innovation.
3. Overhauling Indirect Taxation: Aligning Tariffs with Competitiveness
- Simplify the customs tariff structure to a three-tier system (0%, 5%, 10%) to align with international standards and attract investment in sectors like electronics manufacturing.
4. Adapting to Digital Economies: Modernizing Tax Policies
- Introduce refund mechanisms for the Equalisation Levy (EL) in cases where tax liabilities are revised. Simplify tax return forms for foreign companies without permanent establishments to ease compliance for digital service providers, reinforcing India’s position as a destination for global tech innovation.
“The Union Budget 2025-26 comes at a critical juncture for India’s economic trajectory. As global headwinds persist, it is imperative for India to prioritize reforms that foster investor confidence, simplify the tax regime, and provide targeted incentives for sectors with transformative potential. Recommendations like rationalizing TDS structures, extending concessional tax rates for greenfield manufacturing, and supporting GIFT City as a global financial hub address systemic challenges while opening avenues for sustainable growth.” said Mr. Tarun Bajaj, Chairperson of US-India Tax Forum and former Revenue Secretary, Government of India.
“Addressing Transfer Pricing complexities through the expansion of Safe Harbor provisions and a more efficient Advance Pricing Agreement (APA) process would significantly reduce litigation and create a predictable, transparent environment for global businesses. By tackling these systemic issues, India can reinforce its position as a preferred investment destination.”
Mr. Bajaj added “By reducing compliance burdens, aligning policies with global standards, and ensuring equitable access to resources like healthcare and renewable energy, the USISPF’s vision strikes a balance between economic ambition and social responsibility. These measures, if implemented, will not only attract significant foreign investment but also catalyze job creation, innovation, and a stronger global standing for India. This is an opportunity to make bold, forward-looking decisions that can define India’s economic destiny for decades to come.”
A Transformative Roadmap for Economic Progress
USISPF’s recommendations go beyond immediate tax reforms, charting a comprehensive course for India’s long-term economic growth. By simplifying tax structures, fostering sectoral growth, and reducing compliance burdens, these proposals lay the foundation for a globally competitive India. As the world’s fastest-growing major economy, India is poised to become the third-largest global economy by 2030, and these reforms are key to unlocking its full potential to leverage the government’s vision of becoming a $5 trillion economy.
With the Union Budget 2025-26 upon us, the adoption of these transformative measures will position India as a resilient, innovative, and future-ready economy. The goal is to drive sustainable prosperity and ensure the country’s leadership on the global stage for decades to come.
About the US-India Strategic Partnership Forum (USISPF):
The US-India Strategic Partnership Forum (USISPF) is committed to creating the most powerful partnership between the United States and India. As the only independent not-for-profit institution dedicated to strengthening the U.S.-India partnership in Washington, D.C., and in New Delhi, USISPF is the trusted partner for businesses, non-profit organizations, the diaspora, and the governments of India and the United States.
About the US-India Tax Forum:
The US-India Tax Forum is USISPF’s dedicated Tax Policy Forum which enables focused discussion on important advocacy areas across tax regimes in India. The US-India Tax Forum has around 200 member companies and is the leading tax platform bringing Government of India policymakers, global tax experts, and the business community at large to advocate for better tax policy.
The Tax Forum was officially launched on February 25, 2020, and is an initiative to provide member companies with a platform to engage with relevant Government officials on tax issues as they conduct business in the US-India corridor, discuss the future of taxation and how businesses and governments can work together in a global world to improve the ease of doing business environment.
For media inquiries and further information, please contact:
Ankit Jain – [email protected] (+1 224-460-7900)
Akshobh Giridharadas – [email protected]
