While the Budget announcements on the personal taxation front gave great joy to the majority taxpayers class, various other proposals have also been made in this Budget which promotes the inbound investments in India. In the global investment landscape, it is crucial for India to attract as much investments as it could to promote the capital formation, increase the domestic production and uplift the standards of living in order to achieve the goal of Viksit Bharat.

CA Ravi Kumar (Director – Taxation, S R Dinodia & Co. LLP) and CA Rohan Nasa (Associate) present an in-depth analysis of key measures aimed at enhancing investment opportunities in India for foreign investors. The authors inter alia highlight that, by liberalizing FDI in key sectors, introducing credit enhancement mechanisms, and strengthening manufacturing and clean tech industries, the budget creates an investment-friendly environment for both domestic and global players. In conclusion, they mention that, “With a balanced mix of public expenditure and private sector participation, these measures are set to unlock new capital, drive economic expansion, and solidify India’s position as a leading investment destination. If implemented effectively, these initiatives will catalyse long-term growth, create millions of jobs, and bring India closer to its vision of a Viksit Bharat by 2047.”

“Union Budget 2025 – Measures to Promote Investments in India”

There has been a buzz about the significant and somewhere more than expected reliefs doled out to the middle-class taxpayers which undoubtedly deserve an applause. Nobody foresaw that government would enhance the tax-free income bar to the INR 12 Lakhs per annum [INR 12.75 Lakhs in case of salaried individuals]. While this gives a great joy to the majority taxpayers class, various other proposals have also been announced in this Budget which promotes the inbound investments in India. In the global investment landscape, it is crucial for India to attract as much investments as it could to promote the capital formation, increase the domestic production and uplift the standards of living in order to achieve the goal of Viksit Bharat.

The various key proposal and tax amendments which might lead to promotion of investment in India either directly or by way of providing certainty to the investment climate may be briefly discussed as below:

Tax Reforms to Attract Investments

• Incentives for Sovereign & Pension Funds

The government’s decision to extend the eligibility for tax-free investments in infrastructure by sovereign and pension funds until 2030 will attract long-term foreign capital into critical sectors such as highways, airports, and energy projects. By providing tax incentives, the government is making India a more attractive destination for global sovereign wealth funds and pension funds, which typically seek stable, long-term returns. This extension not only ensures continued investment in vital infrastructure but also strengthens India’s position as a hub for sustainable development and economic growth. With the backing of these substantial, patient investors, India can accelerate its infrastructure development, enhance connectivity, and boost energy security, while also offering foreign investors predictable returns and a favourable tax environment.

• Tax certainty for Electronics Manufacturing Schemes

It is proposed in the budget to provide a presumptive taxation regime for non-residents who provide services to a resident company that is establishing or operating an electronics manufacturing facility deeming 25% of the aggregate amount received/ receivable by, or paid/ payable to, the non-resident, on account of providing services or technology, as profits and gains of such non-resident from this business. As such, effective tax payable would be 10% on gross receipt. It is also proposed to introduce a safe harbour for tax certainty for non-residents who store components for supply to specified electronics manufacturing units. This will encourage foreign investors to increase their participation in India’s growing electronics manufacturing sector, ensuring greater ease of doing business, and driving foreign direct investment in critical sectors of the economy. These initiatives will foster faster industry growth, technological advancement, and job creation.

• Extension of Sunset for incorporation of Start-Ups eligible for deduction

Section 80-IAC of the act provides for a deduction of hundred percent of the profits derived from an eligible business subject to certain conditions. The government’s proposal to extend the period of sunset for incorporation for start-ups by an additional five years, allowing the benefits to be available for companies incorporated before 1.4.2030, will significantly boost FDIs in India. This extension provides greater flexibility and incentives for foreign investors looking to enter India’s vibrant start-up ecosystem, as it ensures continued access to tax exemptions and other supportive measures. By enhancing the appeal of India as a destination for innovative ventures, the move encourages foreign investors to channel more capital into high-growth sectors like technology, healthcare, and sustainable industries, thereby fostering a dynamic start-up environment and accelerating India’s economic growth.

• International Financial Services Centre (IFSC)

The government's proposal to offer specific benefits to ship-leasing units, insurance offices, and treasury centres of global companies set up in the IFSC will attract foreign investments into India. By providing targeted incentives and extending the cut-off date for claiming benefits until 31.3.2030, the government is creating a more favorable investment climate for international financial institutions looking to establish operations in India. This will enhance India’s competitiveness in global markets, encouraging foreign institutional investors and multinational corporations to use India as a base for their financial activities, ultimately driving economic growth, job creation, and technological advancement.

• Alternate Investment Funds (AIFs)

The government’s proposal to provide tax certainty for Category I and Category II AIFs, particularly those investing in infrastructure and other such sectors, is a significant step toward attracting foreign investments to India. Vide Union Budget, 2025, it has now been clarified that the securities held by the aforesaid funds would be treated as capital asset only and thereby, transfer of such securities would attract lower tax rates applicable to capital gains. By ensuring a clear and predictable tax framework for the gains made from securities, the government is reducing the tax-related risks and uncertainties that often deter international investors. This measure will enhance the appeal of India as a stable investment destination for global investors, especially in high-potential sectors like infrastructure. With the assurance of tax clarity, foreign institutional investors and private equity firms are more likely to channel funds into India, contributing to long-term economic growth, sectoral development, and job creation.

• Safe Harbor Rules

The expansion of Safe Harbor Rules in the context of international taxation is an important development for multinational investors in India. The expanded Safe Harbor Rules for international taxation represent a strategic move by India to make the country more attractive for foreign investors. By providing more certainty and offering predictable tax treatments, these reforms make India an even more compelling destination for multinational companies.

Other Measure Proposals

• National framework for Global Capability Centres (GCCs)

India has emerged as a global hub for GCCs. Majority of GCCs in India represents offshore centres set up by the global firms providing specialized services, R&D and innovation, customer support etc. The GCC market in India expected to reach around $110 B by 2030. The Government has proposed that a national framework will be formulated as guidance to states for promoting GCCs in emerging tier II cities.

• Insurance sector – Foreign investment further liberalized

Coming as a major boost for FDI in Insurance sector, the FM has proposed to raise the FDI limit from the existing 74% to 100%. The enhanced limit of 100% is however, available to the companies which invest entire premium in India. The FM has further assured that conditions relating to FDI in Insurance sector will further be rationalized and simplified. This is a welcome proposal for the Insurance sector as whole with foreign investment being promoted without any cap.

• Bilateral Investment treaties.

A bilateral investment treaty (BIT) is an agreement between two countries which establishes the conditions for private investments made by each country's residents in each other. India’s 2016 Model BIT had restrictive provisions that discouraged foreign investors. A revamped BIT framework will align India’s policies with international standards, making the country more attractive for investors. The Hon’ble FM, mentioned in her speech, that India has signed two new BITs i.e., United Arab Emirates and Uzbekistan in 2024. This is a strategic move to enhance investor confidence, attract global capital, and create a stable regulatory environment. It is a critical step toward making India a global investment hub in the coming decade.

• Credit Enhancement Facility by NaBFID.

The National Bank for Financing Infrastructure and Development (NaBFID) will introduce a Partial Credit Enhancement (PCE) Facility to support corporate bonds issued for infrastructure projects. This facility will reduce investment risks for lenders by providing government-backed guarantees, thereby making it easier for companies to raise long-term capital at lower interest rates. By enhancing the creditworthiness of infrastructure bonds, NaBFID can be expected to attract foreign and domestic institutional investors, including pension funds, sovereign wealth funds, and insurance companies, into India’s infrastructure sector.

• INR 1.5 Lakh Crore Interest-Free Loans to States for Capex

The Union Budget 2025 has allocated INR 1.5 lakh crore in 50-year interest-free loans to states for capital expenditure, ensuring higher public investment in infrastructure and economic development. This scheme aims to encourage states to invest in key sectors like roads, railways, power, water supply, housing, and urban development. This initiative aligns with India’s long-term infrastructure development goals and will significantly enhance the country’s investment attractiveness and ease of doing business.

• Urban Challenge Fund (INR 1 Lakh Crore)

The INR 1 lakh crore Urban Challenge Fund is designed to attract private investment in urban infrastructure. The fund will cover up to 25% of project costs, with states and urban local bodies required to raise at least 50% from bonds, bank loans, and Public-Private Partnerships (PPP), ensuring greater private sector participation. By supporting initiatives like “Cities as Growth Hubs” and “Creative Redevelopment of Cities,” the fund aims to make India’s urban centers more investment-friendly, globally competitive, and livable.

• Fund of Funds for Startups

The INR 10,000 crore Fund of Funds (FoF) for Startups aims to boost venture capital (VC) and private equity (PE) investments in India's startup ecosystem. This initiative builds on the Startup India Fund of Funds, launched in 2016, which has already mobilized over INR 91,000 crore in startup funding through Alternative Investment Funds (AIFs). The government does not invest directly in startups but channels funds through AIFs, which then invest in high-growth, scalable startups. This reduces risk for private investors, encouraging them to co-invest alongside the government.

• National Manufacturing Mission – Boosting "Make in India"

The National Manufacturing Mission is a initiative to strengthen India’s manufacturing sector, attract private and foreign investments, and create globally competitive industries. This mission builds on the Make in India and Atmanirbhar Bharat initiatives, aiming to transform India into a high-tech, export-driven manufacturing hub.

• Clean Tech Manufacturing Incentives

The Clean Tech Manufacturing Incentives aim to position India as a global leader in sustainable, climate-friendly industries while attracting large-scale private and foreign investments.

As such, the Union Budget 2025 lays a strong foundation for accelerating investments in India through strategic policy reforms, financial incentives, and infrastructure support. By liberalizing FDI in key sectors, introducing credit enhancement mechanisms, and strengthening manufacturing and clean tech industries, the budget creates an investment-friendly environment for both domestic and global players.

The government’s focus on urban transformation, startup ecosystem growth, and tax reforms further enhances India’s global competitiveness. With a balanced mix of public expenditure and private sector participation, these measures are set to unlock new capital, drive economic expansion, and solidify India’s position as a leading investment destination. If implemented effectively, these initiatives will catalyse long-term growth, create millions of jobs, and bring India closer to its vision of a Viksit Bharat by 2047.