Budget 2025: US-India Tax Forum’s proposals to drive investment and growth

As India prepares for the Union Budget 2025, the US-India Tax Forum (USISPF) has submitted recommendations aimed at enhancing India’s economic competitiveness. These suggestions focus on investment, innovation, and sustainability, paving the way for India’s emergence as a global economic leader.

Here’s a breakdown of the Forum’s key proposals.

Simplifying direct taxation

The USISPF stresses for tax reforms that simplify direct taxation. Key recommendations include:

Streamlining TDS rates: Reducing the complexity of Tax Deduction at Source (TDS) by limiting it to two or three rates. This would ease compliance burdens and encourage businesses to focus on growth.

Tax parity for foreign banks: Aligning tax rates for foreign bank branches with those of domestic banks, making India more attractive for foreign investment.

Concessional tax rate for FPIs: Introducing a 10% tax rate on dividend income for Foreign Portfolio Investors (FPIs) to boost capital inflows.

Support for GIFT City: Exempting dividends in GIFT City and offering tax exemptions on financial transactions, positioning it as a key global financial hub.

Transfer pricing reforms: Expanding Safe Harbor Regulations and speeding up the Advance Pricing Agreement (APA) process for transparency and predictability.

Driving sectoral growth: Manufacturing, healthcare, and renewable energy

To foster sectoral growth, the USISPF recommends targeted incentives in key industries:

Advanced manufacturing: Extending concessional tax rates for greenfield manufacturing projects, particularly in high-growth sectors like renewable energy, electric vehicles, and semiconductors.

Healthcare access: Lowering tariffs on critical life-saving drugs, including cancer treatments and vaccines, while continuing exemptions for certain drugs under Patient Assistance Programs (PAP).

Renewable energy and EV adoption: Offering incentives to manufacturers in renewable energy and electric vehicles to support India’s sustainability goals and job creation.

Reforming indirect taxation: A competitive tariff structure

The USISPF calls for overhauling India’s indirect taxation system to align with global standards:

Simplifying customs tariffs: Implementing a three-tier customs tariff system (0%, 5%, and 10%) to encourage investment, especially in electronics manufacturing and other key sectors.

Adapting to the digital economy: Modernising tax policies

In a rapidly evolving digital landscape, the USISPF suggests the following measures:

Refund mechanism for equalisation levy: Introducing refund mechanisms where tax liabilities are revised, ensuring fairness in the digital economy.

Simplifying tax compliance for digital service providers: Making it easier for foreign companies without permanent establishments in India to comply with tax laws, reinforcing India’s position as a tech hub.