Ahead of India’s annual budget for 2025-26, a US-centric business advocacy group has urged the government to implement bold reforms aimed at boosting investments, strengthening key industries, and positioning India as a leading global growth engine. The US-India Tax Forum, a part of the US-India Strategic Partnership Forum (USISPF), laid out a series of recommendations designed to enhance transparency, simplify the tax regime, and unlock India’s economic potential.
In its comprehensive submission, the Forum emphasized that India’s economic trajectory is at a critical juncture, with global challenges impacting growth. Tarun Bajaj, Chairperson of the US-India Tax Forum and former Indian Revenue Secretary, stressed the need for reforms that will boost investor confidence, simplify taxes, and provide targeted incentives to sectors poised for transformative growth.
"The 2025-26 Union Budget comes at a pivotal moment. With global headwinds looming, India must prioritize reforms to simplify tax structures, foster investor confidence, and incentivize growth sectors," said Bajaj.
Key Recommendations to Revamp India’s Tax Structure and Economic Landscape
The Tax Forum called for reforms aimed at simplifying India’s complex tax system and creating a more investor-friendly environment. The group recommended streamlining the Tax Deduction at Source (TDS) system, reducing compliance burdens by consolidating it into two or three rates. This would allow businesses to focus more on growth rather than navigating tax complexities.
The Forum also suggested aligning tax rates for foreign bank branches with those for domestic banks to make India more attractive to foreign investments. Additionally, a concessional 10% tax rate on dividends for Foreign Portfolio Investors (FPIs) was proposed to stimulate capital inflows.
Making GIFT City a Global Financial Hub
To transform the GIFT City (Gujarat International Finance Tec-City) into a global financial center, the Forum recommended exempting dividends for shareholders in GIFT City and offering tax exemptions on financial transactions to position it as a hub for multinational corporations. Expanding Safe Harbor Regulations (SHR) and accelerating the Advance Pricing Agreement (APA) process were also proposed to foster a transparent, predictable tax environment.
Attracting Investment in High-Growth Sectors
The Tax Forum called for extending concessional tax rates for greenfield manufacturing beyond March 2024 to attract investments in industries like renewable energy, semiconductors, and electric vehicles. Further, it suggested reducing tariffs on critical life-saving drugs and ensuring continued exemptions for certain drugs under Patient Assistance Programs (PAP), thus ensuring better access to healthcare.
The recommendations also included targeted incentives for renewable energy manufacturers and policies to facilitate electric vehicle adoption, thereby promoting sustainability, job creation, and technological innovation.
Simplifying Customs and Taxes for Global Tech Firms
A simplification of the customs tariff structure to a three-tier system (zero, five, and ten percent) was suggested to align with global standards and attract investment in electronics manufacturing. To support India’s tech industry, the Forum also recommended introducing refund mechanisms for the Equalisation Levy (EL) where tax liabilities are revised, as well as simplifying tax return forms for foreign companies without permanent establishments.
Building a Stronger Future for India’s Economy
Bajaj emphasized that addressing transfer pricing complexities, expanding Safe Harbor provisions, and streamlining the APA process would reduce litigation and create a transparent, predictable tax landscape for global businesses. He noted that these reforms would not only attract foreign investments but also foster innovation, job creation, and a stronger position for India in the global economy.
By reducing compliance burdens, aligning policies with international standards, and ensuring equitable access to resources like healthcare and renewable energy, the USISPF’s vision seeks to balance economic growth with social responsibility.
“These bold measures, if implemented, can significantly enhance India’s global standing, attracting foreign investment and catalyzing sustainable growth for decades,” Bajaj concluded.
