Ahead of the Union Budget for fiscal year 2025-2026, the US-India Tax Forum, a key body under the US-India Strategic Partnership Forum (USISPF), has recommended simplifying the Tax Deduction at Source (TDS) structure to two or three rates, aligning tax rates for foreign bank branches with domestic banks, and introducing a 10% tax break on dividends for Foreign Portfolio Investors (FPIs).

To build GIFT City as a worldwide financial hub, the Forum has recommended tax breaks for dividends and financial transactions. For manufacturing and renewable energy, it has advocated extending concessional tax rates for greenfield manufacturing beyond March 2024 and providing a 15% tax rate for Maintenance, Repair, and Overhaul (MRO) firms. In healthcare, it has proposed lowering tariffs on life-saving drugs while maintaining exemptions for medicines under Patient Assistance Programs.

On indirect taxation, the Forum has pushed for a streamlined customs tariff structure with three rates—0%, 5%, and 10%—to attract investment, particularly in electronics industry. To address the digital sector, it has proposed Equalization Levy refund procedures as well as simplified tax return forms for overseas digital service providers.

Tarun Bajaj, Chairperson of the US-India Tax Forum and former revenue secretary, stated that changes like streamlining TDS and addressing transfer pricing difficulties will increase transparency and reduce litigation, making India a more appealing investment location. He also underlined the importance of flexibility in tax assessments, such as permitting several virtual or physical hearings for enterprises with complex structures.

"As global headwinds persist, India must prioritise reforms that boost investor confidence, simplify the tax system, and provide targeted incentives for sectors with transformative potential." Recommendations such as rationalising TDS structures, extending concessional tax rates for greenfield manufacturing, and promoting GIFT City as a global financial hub address structural issues while creating opportunities for long-term growth," said Bajaj.

"Expanding Safe Harbor protections and improving the Advance Pricing Agreement (APA) procedure will dramatically reduce litigation and provide a predictable, transparent environment for multinational enterprises. By addressing these structural concerns, India can strengthen its position as a top investment destination," he said.