Govt should consider simplifying, rationalising tax laws in Budget to boost FDI: Experts

New Delhi, Jan 19 (PTI) The government should consider simplifying and rationalising tax laws and ensuring tax neutrality in cross-border reorganisations in the forthcoming Budget to boost foreign direct investments, experts say.

They also suggested that efforts should be made to reduce the cost of capital.

The budget needs to signal a credible medium-term path of fiscal consolidation and debt reduction, they added.

"The forthcoming budget presents an opportune moment for policymakers to recalibrate the tax framework in a manner that fosters growth, rewards compliance, and enhances the purchasing power of the citizenry-whilst simultaneously addressing long-standing structural impediments to corporate reorganisations and investment flows," Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co said.

He said that a structurally lower cost of capital, reinforced by credible fiscal consolidation, deregulation, and tax clarity, would deepen private investment, and make India a far more compelling destination for long-term FDI and stable portfolio inflows than incremental liberalisation alone.

He also said that with the Companies Act now permitting a broader class of fast-track mergers and overseas holding company reorganisations from September 2025, the absence of corresponding tax neutrality for fast-track demergers creates a structural mismatch.

"Extending tax-neutral treatment to fast-track demergers would ensure that the procedural efficiencies achieved under corporate law are not nullified by adverse tax outcomes," Pandey said.

He also said foreign investors are increasingly drawn to India's defence ecosystem given rising procurement outlays, export momentum, and co-development opportunities under Atmanirbhar Bharat.

"Rather than lifting caps, a pragmatic step today is to remove specific regulatory bottlenecks (in the defence sector)," he said, adding foreign investors remain keen on India's fast-growing e-commerce opportunity given the scale of the digital consumer base and the sector's ability to catalyse exports and MSME participation.

Rumki Majumdar, Economist, Deloitte India, said that India's move to diversify its trade market is a significant step to bring foreign investment.

To improve the FDI, she said India needs to improve the utilisation of free trade agreements, which in turn will require further strengthening of ease of doing business measures, improved logistics and competitiveness and continued focus on the availability of skilled talent.

"To move up the value chain, India will need investment in advanced manufacturing, such as semiconductors, pharma, heavy machinery, clean energy, battery storage, and grid modernisation, which are the other sectors where India must attract investment to meet the growing demand," Majumdar said. PTI RR RR DR