As India prepares for its Union Budget 2025, set to be presented by Finance Minister Nirmala Sitharaman on February 1, tax experts are calling for significant reforms in corporate taxes. These changes are viewed as crucial to fostering industrial growth, attracting foreign investments, and enhancing India’s global competitiveness.

Experts believe targeted reforms in sectors such as manufacturing, renewable energy, and deep-tech innovation could substantially strengthen the nation’s economic position and support the government’s "Aatmanirbhar Bharat" vision.

Sunil Badala, Head of Tax at KPMG India, predicts that the government will focus on simplifying and rationalising the tax system in Budget 2025.

The government is expected to continue its tax reform agenda, maintaining a headline corporate tax rate of 25%, while possibly offering lower tax rates for sectors such as manufacturing, renewable energy, and semiconductorsSunil Badala, Head of Tax at KPMG India

Badala added that the government should reintroduce the 15% concessional tax rate for new domestic manufacturing companies, along with additional R&D incentives to bolster investment in critical sectors like semiconductors and renewable energy.

Ahead of the budget run-up, ETCFO is hosting a weekly live series on Union Budget Expectations 2025 with CFOs, economists, and industry leaders. In this episode, the CFOs of Teamlease, The Hershey Company, Zepto along with India economist from Societe Generale, and Aniket Talati, former President of ICAI, highlighted the key priorities for the different sectors and the economy as a whole.

Experts widely anticipate that the government will continue with its policy of maintaining a moderate corporate tax rate of 25%, while offering sector-specific tax breaks to incentivize growth in crucial industries.

Prashant Bhojwani, Partner at BDO India, emphasized the importance of the manufacturing sector, which requires substantial investments and long gestation periods for high-tech facility setups.

Manufacturing is capital-intensive, and setting up a state-of-the-art facility could take over three years. Therefore, a 17.16% concessional tax rate for manufacturing should be reintroduced, along with a five-year sunset clause for companies commencing operationsPrashant Bhojwani, Partner at BDO India

This measure, he argues, would attract foreign investment and further propel the government's "Make in India" initiative, which aims to enhance domestic manufacturing capabilities.

With an eye on the global tax landscape, Riaz Thingna, Partner at Grant Thornton Bharat, highlighted that India’s current 25% corporate tax rate is reasonable compared to international standards, especially with the OECD’s Pillar Two prescribing a 15% tax rate.

The government's focus should be on addressing specific issues like buyback taxation and providing incentives for emerging sectors such as startups, renewable energy, and artificial intelligenceRiaz Thingna, Partner at Grant Thornton Bharat,

He also called for clarity on Significant Economic Presence (SEP) provisions. "SEP provisions should only apply to digital businesses, not to the importation of physical goods," he stressed.

Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, suggested that a tax rate reduction to 18%-20% for all companies, along with a corresponding decrease in Minimum Alternate Tax (MAT) to 8%-10%, would help promote industrial growth and job creation.

This would align tax rates with industry expectations and boost the 'Make in India' initiative, especially for SMEsAnita Basrur, Partner at Sudit K. Parekh & Co. LLP

She also advocated for reintroducing incentives for plant and machinery investments and job creation, which could help boost both industrial output and employment.

Sandeep Sehgal, Partner at AKM Global, proposed extending the sunset clause for the 15% tax rate on new manufacturing units, which aligns with the government’s broader economic goals.

Extending the sunset clause for the 15% tax rate under Section 115BAB would provide a clear incentive for new manufacturing unitsSandeep Sehgal, Partner at AKM Global,

He added that the government should also introduce sector-specific incentives for Global Capability Centres (GCCs), electronic mobility, and semiconductor units, to position India as a global hub for these high-tech industries.

Industry leaders highlighted the need for reforms to boost economic activity, create jobs, and align with long-term growth objectives, while addressing global headwinds and domestic challenges.

Kumarmanglam Vijay, Partner at JSA Advocates & Solicitors, emphasized the need to support innovation in Budget 2025.

The current 25% corporate tax rate aligns with the government’s revenue needs, but there is significant potential to incentivize R&D activities, particularly in renewable energy and AI sectorsKumarmanglam Vijay, Partner at JSA Advocates & Solicitors

He proposed additional R&D deductions to encourage private sector investment in innovation.

Vijay also recommended extending the 15% concessional tax rate for new manufacturing companies, which could encourage fresh investments in India.

Dhawal Selwadia, Partner at N A Shah Associates LLP, advocated for a strategic reduction in the corporate tax rate to 20% to enhance India’s attractiveness to foreign investors.

A 20% corporate tax rate would provide a much-needed boost to foreign direct investment (FDI) and help expand operations for domestic businessesDhawal Selwadia, Partner at N A Shah Associates LLP

He also suggested reintroducing preferential tax rates for new manufacturing companies, as well as offering tailored incentives for capital-intensive industries and startups to foster industrial growth.

In my discussions with CFOs, a majority of them said they are looking for two things: Ease of doing business (EODB) and GST simplification. Despite a significant rise in digital and data transparency, CFOs believe that the bureaucracy still does not see them with a proper lens, which needs to change.

Rajat Mohan, Senior Partner at AMRG & Associates, emphasized the need to simplify compliance for MSMEs and startups to encourage entrepreneurship.

Simplified audits and tax holidays will foster entrepreneurship and drive growth in key sectors like infrastructure and renewable energyRajat Mohan, Senior Partner at AMRG & Associates,

He proposed a corporate tax rate range of 20%-25%, which would align India with global tax trends and help attract international investments. "A stable and predictable tax regime, free from retrospective changes, will boost investor confidence and further strengthen India’s position as a global business hub," Mohan added.

The government has made significant strides in tax reforms over recent years, including a reduction in the corporate tax rate from 30% to 22% for most companies. A 15% concessional tax rate was also introduced under Section 115BAB for new manufacturing companies that started operations on or after October 1, 2019, and before March 31, 2023. Experts are calling for the extension of this concessional rate and other tax incentives to encourage foreign investment and boost domestic manufacturing.

The current standard corporate tax rate of 22% applies to most companies, with a 25% rate applicable to companies with a turnover exceeding Rs 400 crore.