Budget 2025: US-India Tax Forum's Key Proposals
Ahead of India's Union Budget 2025, the US-India Tax Forum (USISPF) has submitted a series of recommendations designed to further enhance India's global economic competitiveness. The focus is on tax reforms that should help boost investment, foster innovation, and drive sustainability-all vital steps toward positioning India as a global economic leader.
One of the key recommendations is streamlining the Tax Deduction at Source (TDS) system. USISPF suggests reducing TDS rates to two or three categories so that compliance is eased for businesses and they are able to concentrate more on growth.
The Forum also advocates for tax parity for foreign banks, which it urges the government to do by aligning the tax rates for foreign bank branches with those of domestic banks. This is critical to making India a more attractive destination for foreign investment. USISPF further proposes a concessional tax rate of 10% on dividend income for FPIs to increase capital inflows into the country.
The USISPF also advocates for policies that will promote GIFT City, the flagship project of India, hence suggesting tax exemption on dividends and financial transactions to place the city as a global financial hub. The group further advocates for reforms in the area of transfer pricing, an expansion of Safe Harbor Regulations and speeding up the Advance Pricing Agreement (APA) process to enhance transparency and predictability.
The Forum also recommends sectoral growth. For advanced manufacturing, USISPF advocates for extending concessional tax rates for greenfield projects in sectors like renewable energy, electric vehicles, and semiconductors. For health care, USISPF proposes that tariffs on lifesaving drugs, including cancer treatments and vaccines, be reduced to ensure access. For renewable energy and electric vehicle adoption, incentives are prescribed for manufacturers to help India achieve sustainability goals and create jobs.
On the indirect taxation front, USISPF advocates for a revamp of the customs tariff system, suggesting a three-tier structure (0%, 5%, and 10%) to attract investment in key sectors such as electronics manufacturing. The Forum also recommends modernizing tax policies to align with the digital economy, including a refund mechanism for equalization levies and simplifying compliance for foreign digital service providers without permanent establishments in India.
These proposals are aimed at laying the foundation for a competitive, sustainable, and digitally-enabled Indian economy in the years ahead.
