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Modi 3.0 Budget aims to boost India’s economy by cutting tax rates for foreign companies to attract overseas investors and position India as a global manufacturing hub.
Modi 3.0’s first Budget aims to bolster India’s economy by significantly cutting tax rates for foreign companies, a strategic move designed to attract more overseas investors amid a global supply chain shift from China. This initiative is part of India’s ambitious vision to become a $5 trillion economy and establish itself as a global manufacturing hub.
Finance Minister Nirmala Sitharaman announced the proposal to reduce the corporate tax rate on foreign companies from 40% to 35% while presenting the Union Budget. This reduction is expected to provide a substantial boost to Foreign Direct Investment (FDI), which is crucial for India’s economic growth and development.
“To attract foreign capital for our development needs, I propose to reduce the corporate tax rate on foreign companies from 40 to 35 per cent,” Sitharaman declared during the budget announcement. The highest effective tax rate for foreign companies has been reduced from approximately 43.7% to around 38%, according to Vinita Krishnan, Executive Director – Direct Tax at Khaitan & Co.
This tax reduction is especially advantageous for foreign companies with an established presence in India, such as bank branches and infrastructure companies with project offices in the country. It also benefits those generating short-term capital gains from unlisted shares/securities, interest income, or other previously high-taxed income, irrespective of any relief provided by applicable tax treaties.
The move aligns with India’s comprehensive approach to becoming a global manufacturing powerhouse. Policies such as the Production-Linked Incentive (PLI) scheme, lower corporate tax rates, and robust infrastructure development are integral parts of this strategy. By attracting more foreign investment, India aims to capitalize on the global shift in supply chains, particularly from China, and position itself as a prime destination for manufacturing.
The Budget’s focus on creating a conducive environment for foreign investors marks a transformative step towards achieving the government’s economic goals. This initiative is expected to foster a more favorable business climate, encouraging international companies to set up operations in India and contribute to the country’s economic growth.
“The Budget’s emphasis on employment, skilling, MSMEs, and the middle class is particularly relevant for our industry,” said FADA President Manish Raj Singhania. “The Employment Linked Incentive scheme and the enhancement of Mudra loans are encouraging developments that will support job creation and entrepreneurship, leading to increased consumer spending power.”
In addition to tax cuts, the Budget proposes various measures to support the workforce and boost employment. These include Employment Linked Incentive schemes, women’s workforce participation programs, and new skilling initiatives. The Model Skill Loan Scheme will be revised to offer loans up to INR 7.5 lakh, expected to assist 25,000 students annually, while education loans up to INR 10 lakh will be provided with e-vouchers for annual interest subvention of 3% for 1 lakh students each year.
The Budget’s comprehensive measures highlight the government’s commitment to creating a robust job market and equipping the youth with necessary skills for future opportunities. Anuj Jhunjhunwala, CEO of JJG Machining Group, praised the budget, stating, “The government’s subsidy for formal employment, covering one month’s salary for new hires and EPFO contributions for two years, along with a focus on skilling and relaxed internship rules, is a significant positive.”
Dr. Vijay Kalantri, Chairman of WTC Mumbai and President of the All India Association of Industries, also welcomed the budget, highlighting its focus on increasing Mudra loan limits, enhancing credit guarantee funds for MSMEs, and skilling 4.1 crore youth. “By introducing a skilling program for 4.1 crore youngsters, energy security measures, and reforms to accelerate insolvency proceedings, the Union Budget FY25 has established the path for a USD 40 trillion GDP vision,” he stated.
Modi 3.0’s first Budget marks a significant step towards attracting foreign investment and enhancing India’s economic capabilities. By creating a favorable environment for international businesses, the government aims to drive economic growth and establish India as a leading global manufacturing hub.