US-India Tax Forum proposes simplifying TDS, customs tariff structure

Ahead of the Union Budget for the financial year 2025-2026, the US-India Tax Forum, a key body under the US-India Strategic Partnership Forum (USISPF), has recommended streamlining 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 per cent concessional tax rate on dividends for Foreign Portfolio Investors (FPIs).

 

To establish GIFT City as a global financial hub, the Forum has proposed tax exemptions on dividends and financial transactions. For manufacturing and renewable energy, it has recommended extending concessional tax rates for greenfield manufacturing beyond March 2024 and offering a 15 per cent tax rate for Maintenance, Repair, and Overhaul (MRO) firms. In healthcare, it has suggested reducing tariffs on life-saving drugs and continuing exemptions for medicines under Patient Assistance Programs.

 

On indirect taxation, the Forum has advocated for a simplified customs tariff structure with three rates—0 per cent, 5 per cent, and 10 per cent— to attract investments, especially in electronics manufacturing. To address the digital economy, it has proposed refund mechanisms for the Equalisation Levy and simplified tax return forms for foreign digital service providers.

 

Tarun Bajaj, chairperson of the US-India Tax Forum and former revenue secretary, said reforms such as simplifying TDS and addressing transfer pricing complexities would enhance transparency and reduce litigation, making India a more attractive investment destination. He also emphasised the need for flexibility in tax assessments, such as allowing multiple virtual or physical hearings for businesses with complex structures.

 

“As global headwinds persist, it is imperative for India to prioritise reforms that foster investor confidence, simplify the tax regime, and provide targeted incentives for sectors with transformative potential. Recommendations like rationalising TDS structures, extending concessional tax rates for greenfield manufacturing, and supporting GIFT City as a global financial hub address systemic challenges while opening avenues for sustainable growth,” said Bajaj.

 

“Addressing Transfer Pricing complexities through the expansion of Safe Harbor provisions and a more efficient Advance Pricing Agreement (APA) process would significantly reduce litigation and create a predictable, transparent environment for global businesses. By tackling these systemic issues, India can reinforce its position as a preferred investment destination,” he added.