Union Budget 2025-26: TDS revamp, 3-tier customs among US Tax Forum's bold reforms call

The US-India Tax Forum, an India-centric US business advocacy group, has stressed the importance of introducing bold reforms in the upcoming Union Budget 2025-26 to attract fresh investments, strengthen key industries, and elevate the country's position as a premier global growth driver.

The dedicated tax policy forum of the US-India Strategic Partnership Forum (USISPF), in its comprehensive set of recommendations to finance ministry, offered a blueprint for the reforms that can enhance transparency, reduce complexities, and help unlock the country’s full economic potential.

“The Union Budget 2025-26 comes at a critical juncture for India’s economic trajectory,” Tarun Bajaj, former revenue secretary and chairperson of the US-India Tax Forum, said. “It is imperative to prioritise reforms that simplify the tax regime, foster investor confidence, and provide targeted incentives for transformative sectors.”

The Forum recommendations focus on revolutionising direct taxation, driving sectoral growth in manfacturing, healthcare, and renewable energy, overhauling indirect taxation, and modernising tax policies.

Here are the key recommendations:

• Revamping the Tax Deduction at Source (TDS) framework to two or three rates to make it less complicated.

• Reducing corporate tax rates for foreign bank branches to match those for domestic banks.

• Offering a concessional 10% tax rate on dividends for Foreign Portfolio Investors (FPIs) to encourage capital inflows.

• Exemptions for dividends in GIFT City to strengthen its status as a global financial hub.

• Extending tax incentives for greenfield manufacturing beyond March 2024 in high-potential sectors like semiconductors and renewable energy.

• Lowering tariffs on life-saving drugs and ensuring affordable healthcare access.

• Providing targeted incentives for renewable energy manufacturers and facilitate electric vehicle adoption.

• Proposing a simpler three-tier customs tariff system (0%, 5%, and 10%) to attract investment in electronics and other industries.

• Introducing refunds for the Equalisation Levy (EL) in cases of revised tax liabilities.

• Simplifying tax compliance for foreign digital service providers to strengthen India’s position as a tech hub.

The Forum argued that these measures would boost job creation, encourage innovation, and reinforce India’s commitment to sustainability.

"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,” Bajaj said.

USISPF believes these reforms are vital for India’s goal of becoming a $5 trillion economy and the world’s third-largest by 2030.

"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 statement read.