Archive · 7 Aug 2026
India's Stable Tax Regime Must Not Compromise Revenue Goals
Taxes are money that people and companies give to the government to pay for things like roads, schools, and hospitals.
The Indian government has been letting some people and companies keep more of their tax money, hoping they will spend and invest more.
Tax money coming in has not grown much compared to the size of the country's economy for the last five years.
In June, the government said foreign investors who buy certain government bonds will not have to pay capital gains tax.
A new law plan would let some businesses and investors avoid taxes for 15 to 20 years.
The government hopes these tax breaks will create new jobs and give families more money to spend.
Some experts worry that too many tax breaks mean less money for the government.
They say the country also needs big public investment in things like railways, roads, and helping ordinary people.
Past tax cuts did not clearly make companies invest more, so a stable and clear tax system is good, but collecting enough tax matters too.
India's government is using tax breaks and long-term tax holidays to promote investment and consumption despite tax revenues being stagnant relative to GDP for five years.
The liberal approach now extends to capital gains tax, after deep cuts to corporate profit, personal income and goods and services tax (GST).
In June, the government waived capital gains tax and tax on interest income for foreign portfolio investors in G-secs amid persistent weakness in the capital account.
A new Bill proposes 15–20 year tax holidays and clearer rules, benefiting Big Tech firms, offshore funds, Indian companies, domestic data centres and retail investors.
Critics note the 2019 corporate tax cut forewent Rs 5.4 lakh crore through FY25 without visibly accelerating gross fixed capital formation or durably boosting consumption.
- Who
- The Government of India, which has proposed a new tax Bill extending concessions to companies, foreign investors, data centres and other investors.
- What
- Announced long-term tax holidays of 15–20 years and extended tax breaks to capital gains, following earlier cuts to corporate, personal income and GST taxes.
- When
- Recent months; the June announcement on capital gains relief for foreign portfolio investors in G-secs preceded the current Bill.
- Where
- India
- Why
- To spur investment and consumption, create jobs, and lift household income despite weak aggregate demand and a weak capital account.
Proponents of tax concessions
Critics of fiscal giveaways
Tax concessions vs. revenue goals
Proponents of tax concessions
Tax breaks and holidays will spur investment and consumption, creating jobs and household income that more than offset the fiscal cost in the medium to long term.
Critics of fiscal giveaways
Past reliefs, including the Rs 5.4 lakh crore 2019 corporate tax cut, have not clearly boosted investment or durable consumption, and the goal of lifting combined tax revenues to around 25% of GDP should not be compromised.
Path to economic growth
Proponents of tax concessions
Deep tax cuts are a pro-growth strategy that promotes private investment and demand in the current weak-demand environment.
Critics of fiscal giveaways
Structural improvement requires much larger public investment in physical infrastructure and human capital, not just reforms, deregulation and tax concessions.
Role of tax as a redistribution tool
Proponents of tax concessions
Tax reliefs leave more money with investors and households, boosting consumption, household income and job creation.
Critics of fiscal giveaways
Benign tax rates are the right policy, but the role of tax as a redistribution tool should not be compromised.
- Revenue forgone from 2019 corporate tax cut
- Rs 5.4 lakh crore in five years through FY25
- Current combined tax revenue (Centre + states)
- ~18% of GDP
- Recommended combined tax revenue target
- ~25% of GDP
- Centre's tax-to-GDP ratio
- Rose from 10% (FY20) to 11.5% (FY22), stagnant since
- Tax holiday duration in new Bill
- 15–20 years
- Capital gains waiver (June)
- Foreign portfolio investors in G-secs exempt from capital gains and interest income tax
- Beneficiaries
- Global Big Tech firms, offshore funds, Indian companies, domestic data centres, retail and other investors