SBC-India-Union-Budget-2026-Highlights.pdf (1024 x 576 px)

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India Union Budget 2026-27

Home > India Union Budget 2026-27

Key Proposals

A. Budget anchored on Viksit Bharat with 3 Kartavya:

(i) Accelerate & sustain growth
(ii) Build aspirations & capacity
(iii) Ensure inclusive access across regions and communities

Focus on structural reforms, resilient finance, AI-led governance, and global integration.

B. Direct Tax, Transfer Pricing & Indirect Tax – Snippet:

• Structural Reset of India’s Tax System

Transition to the Income-tax Act, 2025 from 1 April 2026 marks a shift from fragmented amendments to a modern, rule-based tax framework.

• From Compliance Burden to Business Enablement

Strong focus on simplicity, certainty, digitisation and reduction of litigation for compliant taxpayers.

• Global Competitiveness at the Core

Tax policy aligned with India’s ambition to attract long-term capital, global services, manufacturing, data centres and cross-border trade.

• Technology-Led Tax Administration

Automation, rule-driven approvals, data integration and trust-based systems replace manual, discretionary processes.

• Transfer Pricing as a Growth Enabler

Predictable margins, automated safe harbours, faster APAs and IFSC incentives reposition India as a stable base for global operations.

• Indirect Tax as a Trade & Manufacturing Catalyst

Tariff rationalisation, export facilitation, duty relief for strategic sectors and digitised customs to improve supply-chain efficiency.

• Shift from Enforcement to Partnership

The framework signals a move from dispute-driven taxation to certainty-driven compliance.

• Unified Message

India is building a simple, predictable and globally integrated tax ecosystem to support scale, speed and sustainable growth.

India is shifting from incremental reform to structural transformation using technology, scale, and global integration to build a resilient, inclusive, and competitive economy.

Key Proposals

C. Individual Income-tax:

• There are no changes in the income tax rates and slabs under both the regimes.

• Individual Persons Resident Outside India (PROIs) may invest in equity instruments of listed Indian companies under the Portfolio Investment Scheme (PIS), with the individual limit increased from 5% to 10% and the overall PROI limit enhanced from 10% to 24%.

• Indian resident buyers of immovable property shall not be required to obtain TAN for TDS while purchase from Non-Resident.

• Immunity from prosecution for non-disclosure of non-immovable foreign assets valued below INR20 lakh, with retrospective effect from 01 October 2024, providing relief to taxpayers who may have inadvertently missed reporting such assets.

• Securities Transaction Tax (STT) has been increased on derivatives, with the rate on futures raised from 0.02% to 0.05%, and the STT on options both on premium and on exercise enhanced to 0.15% from the earlier rates of 0.10% and 0.125%, respectively.

• A special six-month window has been introduced allowing two categories of taxpayers to regularise their disclosures:

Particulars	Category A	Category B
Coverage	Undisclosed income or assets	Foreign income disclosed and tax paid, but foreign assets not declared
Maximum value eligible	Up to ₹1 crore	Up to ₹5 crore
Tax payable	30% of FMV of asset or 30% of undisclosed income	Not applicable
Additional levy	30% of tax (in lieu of penalty)	Not applicable
Fee	Not applicable	₹1,00,000
Immunity	Immunity from prosecution	Immunity from penalty and prosecution
Compliance window	Special 6-month window	Special 6-month window

Other key proposals as enumerated below are summarised in the following pages

I. Transfer Pricing
II. Direct tax
III. Indirect tax

I. Transfer Pricing Proposals

S. No.	Topic bucket	Key proposal (what changes)	Applicability	SBC Comments
Safe Harbour and APA
1	Safe Harbour 2.0 – IT Services	• All Software Dev + ITES + KPO + Contract R&D (software) proposed to be clubbed into one category “Information Technology Services” • Single Safe Harbour margin of 15.5% • Threshold ₹300 cr increased to ₹2,000 cr • Automated rule-driven approval; option to continue 5 years	Effective date will flow from Bill/Rules when notified	• Game-changer for GCCs/IT captives. • Larger coverage shall lead to lower friction along with longer certainty window
2	Fast-track Unilateral APA	• Unilateral APA to be fast- tracked • Endeavour for closure in 2 years, extendable by 6 months on request	To be evaluated once notified	Faster certainty than typical APA cycle
3	APA consequence management – Associated Enterprise (AE) returns	• Where income gets modified due to APA, AE (not just APA signatory) may file return / modified return within 3 months from end of month of APA (for years covered) • For APA entered on/after 1 April 2026	From 1 April 2026 and applies to Tax Year (TY) 2026-27 onwards	Avoids group-level mismatches and unlocks refunds/true-ups across entities
4	Safe Harbour – Data centre related-party pricing + broader global cloud push	Safe harbour 15% on cost for resident entity providing data centre services to a related foreign company providing cloud services globally	From 1 April 2026	Predictable pricing for digital infra / cloud structures
5	Exemption framework for foreign company using India data centres (cross- border model enabling TP certainty)	Foreign company exemption for income arising in India by procuring data centre services from “specified data centre” (Indian owned/operated under approved scheme India users routed via Indian reseller) till 31 Mar 2047 Section 11 read with Schedule IV – ITA 2025	From 1 April 2026 (TY 2026-27 onwards)	• Helps position India as global cloud hub. • Additionally, Complements TP safe harbour for related-party data centre services
6	Transfer Pricing audit report default – penalty converted to fee	• Penalty for non-furnishing TP report proposed to be converted into fee (reducing litigation for technical defaults). • Section 447 of ITA 2025 penalty relates to report under section 172 (TP accountant report)	From 1 April 2026; applies for TY 2026- 27 onwards	• Technical defaults become fee- based and thereby lower litigation, higher automation readiness – Up to 1 month – ₹ 50k or ₹ 1lakh otherwise.
7	Specified domestic transactions	• Proposal to exclude transactions with newly established SEZ units from the scope of SDT.	From 1 April 2026; applies for TY 2026- 27 onwards	• No deduction will be allowed for transactions connected with newly established SEZ units for the income enhanced after ALP computation.
Other Administrative Proposals
1	Safe Harbour – bonded component warehousing (non-resident margin)	• Safe harbour for non- residents for component warehousing in bonded warehouse at 2% of invoice value	As proposed	• Predictable low- margin model for electronics supply chains
2	Section 92CA(3A) – 60 days for TPO order clarified	• Courts differed on limitation and many TP assessments were quashed. It is clarified that the date of limitation u/s 153 / 153B is INCLUDED while computing the 60 days. • This reflects legislative intent and overrides court rulings	ITA 1961: From 1 June 2007 ITA 2025: From 1 April 2026	• Removes technical challenges to TP orders before appellate authorities. • Protects assessments from being quashed on limitation grounds
3	Section 144C(4) & 144C(13) – Final order timelines	• Conflicting judicial views on whether 144C process must fit within overall 153/153B limits, despite explicit carve- outs • Clarified that 153 / 153B govern only the draft order stage, while 144C(4) / (13) timelines override 153/153B for finalisation	ITA 1961: From 1 Apr 2009 (s.153) and 1 Oct 2009 (s.153B) ITA 2025: From 1 April 2026	Restores certainty in DRP timelines; prevents annulment of TP assessments due to misinterpretation and split judgement in the case of Shelf Drilling by the Honourable SC.

II. Direct Tax Proposals

S. No.	Topic	Key proposal (explained)	Applicability	SBC Comments
Incentives and Exemptions (Tax Holidays)
1	Tax exemption for foreign cloud & data centre players	• Income earned by a foreign company from procuring data centre services from an Indian “specified data centre” will be exempt. • The data centre must be owned & operated by an Indian company under a notified scheme. • Where services are used by Indian customers, billing must be routed through an Indian reseller. • The exemption is available up to the tax year ending 31 March 2047. Section 11 read with Schedule IV – ITA 2025	From 1 April 2026	• This creates a new India-hub structure for global cloud players. • Group billing, transfer pricing, reseller arrangements and data localisation contracts must be re-designed to qualify.
2	Five-year global income exemption for non-resident experts	• A non-resident individual who has not been resident in India in the preceding five years and who renders services in India under a notified Central Government scheme will get exemption on all foreign source income for five consecutive years. • Only income sourced outside India is covered. Section 11 read with Schedule IV – ITA 2025	From 1 April 2026	• Enables cost- effective deployment of global experts. • Employers must track residency history and ensure scheme approval documentation.
3	Electronics toll- manufacturing exemption	• Income of a foreign company providing capital goods, equipment or tooling to an Indian contract manufacturer located in a customs bonded warehouse for producing electronic goods • To be exempt up to tax year 2030-31 s.11 read with Schedule IV – ITA 2025	From 1 April 2026	• Supports PLI and EMS models. • Structures must ensure bonded status, ownership of tooling, and arm’s length pricing.
4	Critical mineral exploration deduction expanded	• The list of minerals eligible for deferred deduction of prospecting and exploration expenditure is expanded. • The deduction can be claimed once commercial production begins. Section 51 read with Schedule XII – ITA 2025	From 1 April 2026	Mining companies can plan early- stage investments with future tax shelter
5	MAT exemption for specified non-resident businesses	• Certain non-resident presumptive businesses such as cruise ship operators and technology service providers for electronics manufacturing are excluded from MAT. Section 206 – ITA 2025	From 1 April 2026	Eliminates MAT cash-flow cost for foreign infrastructure operators.
TDS and TCS
1	No TDS on interest to co- operative banks	• Interest paid to co-operative banks, including co- operative land mortgage banks, other than interest on securities, will not be subject to TDS – Section 393(4) – ITA 2025	From 1 April 2026	Aligns with existing ITA 1961 position and removes disputes for borrowers.
2	Correction in property sale TDS note	• A wrong reference in the note to the TDS table for property transactions is corrected to avoid misinterpretation. Section 393(1) – ITA 2025	From 1 April 2026	Prevents erroneous TDS deductions in real estate transactions.
3	TCS rate rationalisation	• Uniform 2% TCS for scrap, minerals and liquor • TCS for Tendu leaves reduced from 5% to 2%. Section 394(1) – ITA 2025	From 1 April 2026	Reduces working capital blockage for traders and manufacturers.
4	Removal of Ambiguity in TDS Rates Applicable to Manpower Supply	• It is proposed to specifically include supply of manpower within the definition of “work”, so that TDS provisions applicable to contract work will apply. • Clarified to be charged @ 1 or 2%	From 1 April 2026	Ambiguity of classification for supply of manpower (contract work) v/s Professional/ technical services removed.
5	TCS reduced on LRS and Overseas Tour package	• LRS remittances for education or medical treatment above ₹10 lakh: TCS rate reduced from 5% to 2%. • Overseas tour programme packages: TCS rate reduced to 2%, and the threshold is removed, making TCS applicable at 2% irrespective of the amount. Section 394 of ITA 2025	From 1 April 2026	These changes reduce the cash- flow burden on individuals by significantly lowering upfront
6	Electronic Filing and Issuance of Certificate for Lower / Nil TDS	It is proposed to allow electronic filing and electronic issuance of certificates for lower or nil deduction of TDS/TCS u/s 395 of ITA 2025, instead of the existing physical process before the Assessing Officer	From 1 April 2026	The amendment aims to reduce compliance burden, especially for small taxpayers
7	Centralised Filing of No-TDS Declaration with Depository	Investors earning dividend, interest on securities, or mutual fund income will be allowed to submit a single no- TDS declaration to the depository, instead of filing separate declarations with each payer.	From 1 April 2027	Payers will now report such declarations quarterly instead of monthly, reducing compliance burden. The facility will apply only to listed securities or units held in demat form.
8	No TDS on Interest on compensation amount awarded	Awarded by Motor Accidents Claims Tribunal to an individual Section 393 of the ITA 2025	From 1 April 2026	Relief to the individual and to alleviate the hardship caused due to Accident
9	Quoting of PAN instead of TAN for sale of immovable property by NRIs	A resident individual / HUF is not required to obtain a TAN for deducting TDS on consideration paid under section 393(2) Section 397(1)(c) of ITA 2025	From 1 October 2026	Reduces compliance burden for the resident individual and HUF
IFSC and Investments income
1	Tax rate for IFSC post tax holiday period	Eligible business income of units in IFSC will now be taxed at 15% instead of the 22% or 30% rate applicable to income earned after the tax holiday period	TY 2026-27	Further incentivises the IFSC.
2	Extension of tax holiday for IFSC Units	• It is proposed to increase the period of deduction to 20 consecutive years out of 25 years for units in IFSC and 20 consecutive years for OBUs	From 1 April 2026 onwards	Govt states that the same is to increase the competitiveness of IFSC.
3	No deduction of interest against dividend income	• Taxpayers were allowed a deduction for interest expenditure up to 20% of dividend income while computing income under the head ‘Income from other sources’. • Such deduction shall not be allowed	From 1 April 2026 onwards	Passive income discouraged from claim of expenses and to be offered on gross basis.
4	Buy back tax	• Consideration received on buy-back of shares chargeable to tax under the head ‘capital gains’ i.e., the same shall not be treated as dividend income. • Additional income tax on capital gains shall be payable by ‘promoter’ shareholders @22% (for domestic corporate shareholders) and @ 30% (for others)	From 1 April 2026 onwards	This move brings parity between buybacks and other modes of profit distribution such as dividends, while also strengthening tax neutrality and anti- avoidance safeguards. Treaty benefit for additional tax levied on promoter’s buy- back entitlement to be perused in detail
5	Sovereign Gold Bonds (SGBs)	• Capital gains exemption on redemption of SGBs restricted to original subscribers holding till redemption	From 1 April 2026 onwards	To be held continuously until redemption on maturity for exemption
Litigation and Dispute Resolution
1	Jurisdictional AO clarification for reassessment	• It is clarified that reassessment proceedings will not fail merely because the notice is not issued by the “jurisdictional” AO, resolving conflicting court views (Reassessment provisions u/s 148 and 148A of ITA 1961 & corresponding provisions in ITA 2025).	ITA 1961: Retrospective from 1 April 2021 ITA 2025: From 1 April 2026	Substantially reduces writ litigation against reopening notices. However, impact on cases pronounced to be rechecked pending adjudication before Honourable Supreme Court.
2	DIN procedural defects neutralised	• Courts quashed notices/orders lacking DIN. • The law now clarifies if assessment order are referenced by such number in any manner, then such orders shall be valid	ITA 1961: Retrospective from 1 October 2019 ITA 2025: From 1 April 2026	Pending DIN- based challenges may not survive; Focus may shift to merits.
3	Single order for assessment & penalty	• Assessment and penalty will be passed in one consolidated order to avoid parallel proceedings	ITA 1961: From 1 March 2026 ITA 2025: From 1 April 2027	Reduces procedural litigation and shortens dispute lifecycle.
4	No interest on penalty during first appeal	• Interest will not accrue on penalty while the first appeal is pending (ITA 2025)	ITA 1961: From 1 March 2026 ITA 2025: From 1 April 2027	Removes compounding financial pressure during litigation.
5	Pre-deposit reduced to 10%	• Mandatory pre-deposit for filing appeal reduced from 20% to 10% of core tax demand (ITA 2025)	From 1 April 2026	Makes appellate remedy financially accessible, especially for MSMEs.
6	Updated return allowed after reassessment notice	• Taxpayer may file an updated return even after reassessment is initiated, with additional 10% tax (ITA 2025). Section 263	ITA 1961: From 1 March 2026 ITA 2025: From 1 April 2026	Encourages early settlement and reduces prolonged litigation.
7	Immunity extended to misreporting cases	• Immunity from penalty and prosecution extended to misreporting, subject to additional tax equal to 100% of tax . Section 440 of ITA 2025	From 1 March 2026 for AY 2026-27 or any earlier AY’s	Allows settlement even in aggressive tax positions.
8	Decriminalisation of minor offences	• Non-production of books and TDS paid in kind decriminalised; graded prosecutions introduced (ITA 2025).	ITA 1961: From 1 March 2026 ITA 2025: From 1 April 2027	Reduces prosecution exposure and compliance risk.
9	Small foreign asset immunity scheme	• One-time 6-month scheme for disclosure of foreign assets (≤ ₹20 lakh non- immovable) with immunity from prosecution (Black Money Act).	6-month window (to be notified)	Strategic clean-up window for NRIs, students, tech professionals.
10	Time Limit for Completion of Block Assessment	• The time limit for completion is extended to 18 months from the initiation of the search/requisition, aligning group search cases under a uniform timeline.	From 1 April 2026	Ensuring uniformity in time limits for group searches and creating a more coordinated approach to investigations and assessments.
11	Rationalization of Block Period for Other Persons	• Restricted block period for “other persons” (third parties) involved in a search or requisition. Rule limits the block period to only the relevant tax year(s) where the undisclosed income pertains.	From 1 April 2026	This change rationalizes the assessment period for third parties, ensuring a more proportionate and targeted approach.
12	Unexplained Cash and Credits rate rationalised	• Tax rate is reduced from 60% to 30%. Further, a penalty of 10% is omitted. • However, such an offence will continue to be subject to a penalty of 200% applicable for misreporting of income.	TY 2026-27 onwards	Immunity from penalty can be by making a payment of 120% of the tax payable on such income.
Others – Return filing, Computation of income and procedural issues
1	Time Limit for Filing Revised Return	• Extends the time limit for filing a revised return from 9 months to 12 months from the end of the relevant tax year, or before the completion of assessment, whichever is earlier. • Additionally, a fee will be applicable for revised returns filed after 9 months. Section 263(5)	From 1 April 2026	This extension provides taxpayers with more flexibility to file revised returns, but the imposition of a fee after 9 months introduces a costly incentive to file revisions promptly, encouraging timely compliance while offering some leeway.
2	Relaxation in Filing Updated Return in case of reduction of losses	• Allows taxpayers to file an updated return even if a loss continues. Additionally, it permits the reduction of loss in cases where the updated return reduces the amount of loss claimed in the original timely filed return. • This relaxation addresses hardship by allowing voluntary correction of excessive loss claims. Section 263(6)	From 1 April 2026	This amendment offers a significant relief for taxpayers by enabling them to correct excessive loss claims and file updated returns even when a loss is still involved, providing a more flexible and fair approach to loss adjustments.
3	Rationalization of Minimum Alternate Tax (MAT) Provisions	• MAT will be treated as a final tax under the old tax regime, with no further MAT credit allowed. • The MAT rate is reduced from 15% to 14% of book profit for domestic companies under the old tax regime. • MAT credit set-off will only be allowed in the new tax regime for domestic companies, limited to 25% of the tax liability.	From 1 April 2026	This amendment simplifies the MAT framework, reducing the burden of MAT credits and incentivizing the shift to the new tax regime, while offering a reduced MAT rate for smoother compliance.
4	Allowing the Filing of Updated Return After Issuance of Notice of Reassessment	• The proposed amendments allow taxpayers to file an updated return even after the issuance of a notice of reassessment under Section 280. • Additionally, the additional income-tax payable for filing such updated returns will include a 10% extra charge, but the income on which this tax is paid will not be subject to penalty under Section 439. Section 280	From 1st April 2026 for Tax Year 2026-27 and subsequent years.	This change facilitates voluntary compliance and reduces litigation by allowing updated returns during reassessment proceedings, while the additional 10% tax helps ensure proper compliance without penalizing taxpayers for such corrections.
5	Exemption on Interest Income under the Motor Vehicles Act, 1988	• Exemption on income in the nature of interest awarded under the Motor Vehicles Act, 1988. • This exemption applies to interest received by an individual or their legal heir as compensation for death, permanent disability, or bodily injury under the Act. Section 11	From 1 April 2026.	This exemption provides much- needed relief to victims of motor vehicle accidents and their families.
6	Rationalizing the Due Date for Employee Contribution Deduction	• Changes the due date for claiming deductions on employee contributions made by the employer. • Due date for claiming such contributions will be aligned with the due date for filing the income tax return under Section 263(1). Section 29	From 1 April 2026	This amendment offers the employers with more flexibility in meeting compliance requirements without losing out on deductions.
7	Allowing Deduction to Non-Life Insurance Business When TDS Not Deducted Earlier is Paid Later	• Allows non-life insurance businesses to claim deductions for amounts previously disallowed under Section 35(b)(i) and 35(b)(ii) due to TDS not being deducted or paid on time. • when the TDS is subsequently deducted and paid. Section 35	From 1 April 2026	This amendment brings fairness and clarity to the tax treatment of non- life insurance businesses by allowing them to claim deductions for TDS expenses once the overdue TDS is settled
8	Exemption of Income on Compulsory Acquisition of Land under the RFCTLARR Act	• Aligns the Income-tax Act with the RFCTLARR Act, 2013. It provides an exemption on income arising from the compulsory acquisition of land under the RFCTLARR Act. Section 11	From 1 April 2026	Ensures consistent treatment of compensation for land acquisition, aligning the Income-tax Act with the RFCTLARR Act.
9	Exemption for Disability Pension to Armed Forces Personnel	• Provides exemption for disability pension only to armed forces personnel who are invalided out of service due to a bodily disability attributable to or aggravated by their military service. • The exemption will also extend to paramilitary personnel.	From 1 April 2026	Limiting it to those invalided out of service due to service-related disabilities, while extending the benefit to paramilitary personnel as well.
10	Rationalizing Due Dates for Filing of Income Tax Return	• Rationalize the due dates for filing income tax returns for different classes of taxpayers. • For non-audited business cases and trusts, the due date is extended from 31st July to 31st August to provide more time for preparation and compliance. • For individuals filing ITR-1 & ITR-2, the due date remains 31st July. Section 263	ITA 1961 From 1 March 2026 ITA 2025 From 1 April 2026	This change provides more flexibility for taxpayers engaged in non-audited businesses or trusts, simplifying their compliance process and reducing grievances, while maintaining the filing deadlines for most other individuals and businesses.

III. Indirect Tax Proposals – GST

S. No.	Topic bucket	Key proposal (what changes)	Applicability	SBC Comments
1	Post-sale discounts are now simplified	1. The amendment to Section 15(3)(b) OF CGST Act 2017 eliminates the need for a pre-existing agreement or invoice-specific linking for post-sale discounts. 2. To exclude the discount from taxable value, the only requirements are: Ø The supplier issues a Credit Note Ø The recipient reverses the proportionate Input Tax Credit (ITC) 3. Consequential alignment of Section 34 of CGST Act 2017 with revised Section 15(3)(b) is proposed under the Finance Bill, 2026.	To be Notified.	This taxpayer-friendly move acknowledges commercial reality, where post-sale discounts like year- end or performance- based incentives are often granted without a pre-existing contract. By deleting the ambiguous requirement of invoice-specific linkage, it significantly reduces litigation and disputes over volume- based and aggregate discounts.
2	Provisional Refund now applies to Refunds under Inverted Duty Structure	• Extension of Provisional Refunds 54(6): Currently, grant of 90% of the refund claim on a provisional basis is primarily available for zero-rated supplies (exports). This benefit is now being extended to refunds arising from an Inverted Duty Structure. • Removal of Minimum Threshold for Exports 54(14): Generally, restricted refund claims less than ₹1,000 now removed specifically for cases where goods are exported out of India with payment of tax (IGST)	To be Notified.	• Businesses with accumulated credit due to inverted duty will get faster access to cash flow (90% of their claim) while the final verification is pending • Exporters paying IGST can now claim refunds for any amount, even if it is below ₹1,000, ensuring no tax sticks to exported goods.
3	GSTAT as Interim National Appellate Authority	Section 101A(1A) empowers the Government to authorise an existing authority or tribunal (such as GSTAT) to hear appeals on conflicting advance rulings.	From 1 April 2026	The amendment addresses the non- functioning of the NAA, reducing uncertainty for taxpayers.
4	Place of Supply of intermediary services	Section 13(8)(b) of the IGST Act has been omitted, removing the special place-of-supply rule for intermediary services. The place of supply will now be determined under Section 13(2), i.e., based on the location of the service recipient.	To be Notified.	This aligns intermediary services with general GST rules, reduces disputes, and enables export benefits for services provided to foreign clients.

Indirect Tax Proposals – Customs

S. No.	Topic bucket	Key proposal (what changes)	Applicability	SBC Comments
1	Custom Duty Exemptions	• BCD exemption on components for the manufacture of civilian, training and other aircrafts. • Facilitation of sales by in SEZ to the DTA at export turnover. / parts required eligible manufacturing units concessional rates of duty. • Increase in limit for duty-free imports of specified inputs used for processing seafood products for export, from the current 1% to 3% of the FOB value of the previou	As notified in detail	These measures signal a strong pro- manufacturing and export-oriented approach by reducing input costs and easing market access across key sectors.
2	Ease of Doing Business with New Export Opportunities	• Approvals required for cargo clearance through a single & interconnected digital window. • Customs Integrated System (CIS) to be rolled out in 2 years as a single, integrated and scalable platform . Complete removal of current value cap of 710 lakh per consignment on courier exports. • Fish catch by an Indian fishing vessel in Exclusive Economic Zone (EEZ) or on the High Seas to be made free of duty.	As notified in detail	These measures significantly improve ease of trade by reducing clearance bottlenecks, lowering logistics and compliance costs, and enabling faster market access— particularly benefiting exporters, courier-based trade, and the marine sector through greater operational efficiency and competitiveness.
3	Healthcare Relief & Personal Import Duty Rationalisation	• Reduction of tariff rate on all dutiable goods imported for personal use from 20% to 10%. • Basic customs duty on 17 drugs or medicines to be exempted to provide relief to patients, particularly those suffering from cancer. • Addition of 7 more rare diseases for the purposes of exempting import duties on personal imports of drugs, medicines and Food For Special Medical Purposes (SMP) used in their treatment.	Refer detailed alert to be released shortly	These measures significantly reduce the cost of essential medicines and personal imports, improving affordability and access to life-saving treatments while reflecting a strong policy focus on patient welfare and social impact.
4	Strategic Duty Relief for Energy Transition & Resource Security	• Extension of the basic customs duty exemption given to capital goods used for manufacturing Lithium- Ion Cells for batteries and battery energy storage systems • Extension of the basic customs duty exemption on imports of goods required for Nuclear Power Projects till the year 2035 • Basic customs duty exemption to the import of capital goods required for processing of critical minerals in India • Exclusion of the entire value of biogas while calculating the Central Excise duty payable on biogas blended CNC	Refer detailed alert to be released shortly	These measures reinforce long-term policy commitment to energy transition and strategic self- reliance by lowering project costs for lithium-ion batteries, nuclear power, critical minerals processing, and green fuels, thereby improving investment viability and accelerating sustainable infrastructure development.

The above highlights capture the broad policy/tax direction and key changes. Our detailed Budget 2026 tax alert, covering section-wise amendments, industry impact, and compliance action points, will follow shortly.

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Transfer Pricing (TP) Compliance Developments in Mauritius – Finance Act 2025

Transfer Pricing (TP) Compliance Developments in Mauritius - Finance Act 2025

Home > Transfer Pricing (TP) Compliance Developments in Mauritius – Finance Act 2025

The Finance Act 2025 marks a major shift in Mauritius’s tax and transfer pricing (TP) landscape. Section 75 of the Income Tax Act, which has long required related-party transactions to meet the arm’s length principle, will now be reinforced with mandatory TP documentation effective 8 August 2025. This aligns Mauritius with OECD BEPS standards, requiring companies to maintain detailed records of intercompany dealings. Multinational enterprises, Global Business Companies, and local groups must prepare Local and Master Files, ensure fair pricing, and demonstrate real economic substance.

The Act also introduces the Qualified Domestic Minimum Top-Up Tax (QDMTT), a Fair Share Contribution for high-income individuals, a 10% Alternative Minimum Tax for certain industries, and VAT on digital services from January 2026. These changes highlight Mauritius’s commitment to transparency, global tax alignment, and stricter compliance. Businesses should act now to strengthen governance, mitigate risks, and prepare robust documentation. Click below to download

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360° Fixed Asset Management

Home > 360° Fixed Asset Management

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Implications of Secondary Adjustment u/s 92CE

Home > Implications of Secondary Adjustment u/s 92CE

Implications of Secondary Adjustment

Foresight for Taxpayers

Taxpayers must adopt a forward-looking approach to manage secondary adjustment risks under Section 92CE. Any primary adjustment—whether voluntary, audit-driven, or arising from APA, Safe Harbour, or MAP—must be closely reviewed to identify “excess money” retained by foreign AEs. This amount must be repatriated to India within prescribed time to avoid it being treated as a deemed loan, triggering notional interest under Rule 10CB. Where repatriation is not feasible, opting to pay a one-time additional tax at 20.9664% offers a clean exit from continued compliance and interest exposure. A proactive year-end transfer pricing review is critical to ensure alignment, minimize tax risks, and safeguard against future disputes.

Primary Adjustment

A Primary Adjustment refers to modifying the transfer price of an international transaction to align with the arm’s length principle. It arises when there is a need to correct the reported income of the taxpayer due to non-compliance with the arm’s length principle.

Statutory Triggers for Primary Adjustment u/s 92CE(1)

Implications of Secondary Adjustment

Secondary Adjustment

A Secondary Adjustment refers to an adjustment in the books of accounts of the taxpayer and its Associated Enterprise (AE) to reflect the actual allocation of profits consistent with the transfer price determined as a result of a primary adjustment.

• Secondary Adjustment Provisions u/s 92CE are attracted in the following cases:

– The amount of Primary Adjustment is exceeding Rs. 1 Crore.

– The Primary Adjustment is made not relate to AY 2016-17 (FY 2015-16) or earlier.

• Where applicable, the primary adjustment amount must be repatriated to India within prescribed time. If not, the excess money is deemed to be an advance by the taxpayer to the AE.

• In such cases, the taxpayer must compute and offer to tax the notional interest on the deemed advance, following the methodology prescribed under Rule 10CB(2) of the Income-tax Rules.

• Repatriation is the transfer of funds or assets from a foreign country back to the home country. In taxation, it usually involves bringing back profits, dividends, or capital earned overseas.

• Countries may adopt different approaches to secondary adjustments:

1. Deemed Dividend:

Excess profits treated as dividends distributed to the parent entity, possibly subject to withholding tax.

2. Deemed Loan:

Excess profits treated as a loan from one AE to another; interest imputed accordingly.

3. Capital Contribution:

Recognizes excess profits as equity infusion.

India has adopted the Deemed Loan Approach under Section 92CE to address cases of non-repatriation.

Implications of Secondary Adjustment

Time limit for repatriation of excess money and Computation of 90 days – Rule 10CB (1)

Interest Rate on Excess Money – Rule 10CB(2)

(i) Where the international transaction is denominated in Indian rupee – One-year MCLR of SBI On 1st April of PY +3.25%(325 BPS).

(ii) where the international transaction is denominated in foreign currency – 6 Months LIBOR on 30th September of PY + 3%(300 BPS).

Alternative to Secondary Adjustment

• Section 92CE permits the assessee to pay a final additional tax of 18% (effective 20.97% including surcharge 12% and cess 4%) on unrepatriated excess money to avoid secondary adjustments and interest beyond the tax payment date.

• This tax is final, with no further deductions or credits permitted under the Income-tax Act.

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Transfer Pricing Assessment Procedure

Home > Transfer Pricing Assessment Procedure

Transfer Pricing Assessment Procedure

Foresight for Taxpayers

It’s crucial for taxpayers to effectively manage domestic litigation through proactive foresight at every stage—from pre-litigation assessment to final resolution and enforcement. Taxpayers should maintain robust documentation, assess litigation risks early, and align their positions with judicial precedents and departmental guidance.

Knowing the litigation procedure is not optional—it’s essential. A single misstep in procedural compliance, such as missing a timeline or filing the wrong form, can lead to dismissal or weaken the case. Awareness and preparedness are as important as the technical position itself. Timely responses to notices, strategic decision-making on appeals, and readiness for alternative dispute resolution mechanisms such as the DRP or settlement schemes can significantly reduce prolonged litigation.

A well-structured litigation strategy not only mitigates potential exposure but also ensures consistency in legal positions across assessment years, ultimately contributing to efficient dispute resolution and improved outcomes. The CBDT’s Instruction No. 3/2016 lays out clear parameters for risk-based scrutiny—providing taxpayers with visibility into what triggers an assessment.

CBDT Instruction No. 3/2016: Framework for Risk-Based Selection and Referral of TP Cases

• CBDT Instruction No. 3/2016 marks a significant transition from the earlier monetary threshold- based approach (as per Instruction No. 15/2015) to a risk-based selection mechanism for Transfer Pricing (TP) audits.

• If a case is selected for scrutiny under TP risk parameters (either via CASS or manual selection), the Assessing Officer (AO) must mandatorily refer the matter to the Transfer Pricing Officer (TPO).

• The AO is barred from conducting TP analysis independently in such cases.

• The AO must also refer the case to the TPO even if selected on non-TP parameters, if any of the following is observed:

– Non-filing of Form 3CEB (Accountant’s Report)

– Non-disclosure of international transactions or Specified Domestic Transactions (SDTs) in the report

– Prior TP adjustment of INR 10 crore or more in earlier years, upheld or under appeal

– Findings from search/seizure/survey indicating TP issues

• This instruction prioritizes complex and high-impact TP cases instead of just high transaction value.

• Reduces subjective referrals and avoids unnecessary TP litigation.

• Acknowledges that TP is a specialized function—to be handled by trained TPOs only.

• Targets multi-jurisdictional transactions, especially those involving intangible assets or group synergies, as high-risk.

Transfer Pricing Assessment Procedure

Domestic Litigation Cycle

• Referral to TPO: In case of international transactions, the AO refers the matter to the TPO under Section 92CA(1).

• TPO Order: TPO examines the arm’s length nature of international transactions and issues a TPO order with proposed adjustments, if any.

• Draft Assessment Order: Based on the TPO’s findings, the AO issues a draft assessment order u/s 144C(1) for eligible assessee.

• Filing of Objections with DRP u/s 144C(2): The assessee has 30 days to accept the draft order or file objections with the DRP u/s 144C(2). If DRP objections are filed, the AO cannot pass the final order until DRP directions are received. DRP issues directions within 9 months, after which the AO passes the final order in line with those directions.

• Final Assessment Order: If no objections are filed, the AO passes the final order as per the draft order.

Transfer Pricing Assessment Procedure

• Appeal before CIT(A): After the final order is passed, if the assessee is aggrieved, an appeal can be filed before the CIT (A) within 30 days of receipt of the final order. CIT(A) reviews and disposes of the appeal, typically within 1 to 2 years.

• Appeal before ITAT: If still dissatisfied, the assessee may file a appeal to the ITAT within 60 days of the CIT(A) order.

• Appeal to High Court and Supreme Court: Further appeals can be made to the High Court within 120 days and Supreme Court within 90 days on substantial questions of law.

• Litigation Timeline: The entire litigation cycle, if pursued fully, can span 8 to 15 years depending on the complexity and jurisdiction.

Emerging TP Litigation Issues

Transfer Pricing Assessment Procedure

Steps to Avoid TP Litigation

How can SBC assist you?

With a strong hold on Indian transfer pricing controversy management and emerging TP disputes, SBC has a proven track record of litigation wins and supporting TP clientele with a result-oriented approach and cost-benefit analysis. We can support your business with the following aspects:

Representation before various forums, including drafting appeals and submissions.
Strategizing the approach before tax authorities, considering facts and judicial precedents.
Case Law Compilations for specific TP disputes, leveraging our TP knowledge database and research repositories.
Transfer Pricing Health Check-Up to avoid or mitigate risks.
TP Due Diligence and Risk Assessment.
Evaluation of alternative dispute resolution and prevention mechanisms for repeated or evolving TP disputes.

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ITAT Delhi Ruling on Treaty Abuse Allegation and DTAA Benefits

Home > ITAT Delhi Ruling on Treaty Abuse Allegation and DTAA Benefits

Executive Summary:

• The Delhi Tribunal, in a recent ruling, has decided in favour of Gagil FDI Ltd., a Cyprus-based investment holding company, granting exemption on capital gains and dividend income under the India-Cyprus Double Tax Avoidance Agreement (DTAA).

• The Tribunal categorically rejected the Revenue’s allegations of treaty abuse, noting the existence of a valid Tax Residency Certificate (TRC) and the company’s operational control in Cyprus. The decision reinforces the legal sanctity of TRC(s) and the significance of regulatory approvals granted by RBI, SEBI, and FIPB.

Revenue’s Contentions:

• Conduit Structure Allegation: AO alleged that the assessee routed investments through Cyprus only to exploit DTAA provisions.

• Beneficial Ownership in US: Claimed the real beneficiaries and directors were US- based.

• Control from USA: Asserted decision-making was managed from the US. Link to Panama Papers: Claimed the use of a service provider named in the Panama Leaks.

Assessee’s Submissions:

• Valid TRC & Economic Substance: TRC from Cyprus, with independent functioning.

• Operational Management in Cyprus: Demonstrated control via board records.

• Multi-jurisdictional Funds: Funding from Bermuda, Germany, Delaware.

• Regulatory Scrutiny: Approvals from SEBI, RBI, and FIPB were substantive.

• No Link to Panama Entity: Differentiated ABACUS Ltd. from Panama-named firm.

ITAT Delhi Ruling:

• Rejects Treaty Abuse Allegation: Found no substantial merit in Revenues claim.

• Valid TRC Holds Ground: TRC and bona fide operations suffice for DTAA.

• No Control from USA: Confirmed Cyprus-based governance.

• Approvals Are Material: Criticized DRPs view on SEBI/RBI scrutiny.

• Differentiates ABACUS Entities: Found no linkage to Panama leaks.

Key Takeaways

• Substance over Form

It is important to check where the company is effectively managed and controlled.

• TRC Remains Vital

A valid TRC is a crucial piece of documentary evidence to establish eligibility for benefits of Tax Treaty.

• Regulatory Vetting Is Not Cosmetic

Approvals from regulatory bodies like RBI, SEBI, or FIPB are substantive and lend credibility to the legitimacy and genuineness of cross-border structures.

• Avoid Over-reliance on Panama Leaks

Allegations drawn solely from data leaks like the Panama Papers require corroborating evidence to hold weight in legal or tax proceedings.

• Case Law Reinforced

The ruling is in line with previous judicial decisions such as in the Saif II-Se Investments Mauritius Ltd. vs. ACIT, 154 taxmann.com 617 (Delhi-Trib) and Tiger Global International III Holdings vs. The Authority for Advance Rulings (Income Tax & Ors.), reaffirming similar legal interpretations.

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PAS-6 Reconciliation of Share Capital Audit Report (Half-Yearly)

Home > PAS-6 Reconciliation of Share Capital Audit Report (Half-Yearly)

Introduction to Form PAS-6

What is Form PAS-6?

• A half-yearly audit report filed with the Registrar of Companies (ROC).

• Introduced under Rule 9A(8) of Companies (Prospectus and Allotment of Securities) Rules, 2014 in 10th September 2018.

• Certified by a practicing Company Secretary (CS) or Chartered Accountant (CA).

Purpose

• Verify issued capital against shares in Demat (NSDL/CDSL) and physical form.

• Report discrepancies and changes in share capital (e.g., bonus issues, ESOPs, buybacks).

• Ensure compliance with mandatory dematerialization for applicable companies.

• Ensures transparency in share capital by reconciling issued capital with Demat and physical shares.

Applicability	Non-Applicability
Unlisted Public Limited Companies w.e.f. 02nd October 2018. Notification (MCA vide General Circular G.S.R. 376(E). dated 22nd May 2019)	• Nidhi Company • Government Company • Wholly Owned Subsidiary Company of Public Company • Small Private Limited Companies

Timelines for Filing

Companies having ISIN	Period for which Form PAS-6 is to be filed	Due Date
Before 31st March 2025	April 1 – September 30	29th November
Before 31st March 2025	October 1 – March 31	30th May
After 1st April 2025 and before 30th June 2025	Private Limited Companies (other than small companies) not having ISIN & dematerialize their shares on or before 30th June 2025 must file for the half-year within 60 days ending 30th September 2025.	29th November 2025

Penalties for Non-Compliance

As per Section 450 of the Companies Act, 2013: Company and every officer in default:

• ₹10,000 and

• ₹1,000 per day for continuing default (Maximum: ₹2,00,000 for company and ₹50,000 for officer)

What is Dematerialization of Shares?

Dematerialization of shares is the process of converting physical share certificates into electronic form, stored in a digital account with a depository, such as the National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL) in India

Aspect	Listed Public Companies	Unlisted Public Companies	Private Companies
Applicability	Mandatory for all listed public companies under SEBI guidelines.	Mandatory for Unlisted public companies under MCA notification G.S.R. 853(E)	Mandatory for certain classes of private companies under MCA notification G.S.R. 802(E).
Regulatory Authority	Securities and Exchange Board of India (SEBI)	Ministry of Corporate Affairs (MCA)	Ministry of Corporate Affairs (MCA)
Threshold Criteria	Not applicable	Not applicable	Private companies (excluding small companies) with: • Share capital ≥ ₹4 crore and • Turnover ≥ ₹40 crore
Applicability of PAS-6	Mandatory to file PAS-6	Mandatory to file PAS-6	Mandatory to file PAS-6 refer timelines for filing table
Verification & Process Oversight	Done by RTA (Registrar and Transfer Agent) under SEBI supervision	Done by RTA, but under MCA oversight if demat is mandated	Done by RTA, but under MCA oversight if demat is mandated

Important Note:

The deadline for dematerialization of shares by non-small private limited companies has been extended i.e., 30 June 2025. As per MCA General Circular G.S.R. 131(E) dated 12th February 2025, it is now mandatory for all non-small private limited companies to convert their physical share certificates into dematerialized form.

FAQ’s

Q1. What is the ISIN code?

ISIN (International Securities Identification Number) is a unique 12-digit alphanumeric code used to identify securities. Each country’s National Numbering Agency (NNA) issues ISINs. In India,

• NSDL issues ISINs for most securities, under SEBI’s direction.

• RBI handles ISIN allotment for government securities.

Q2. What is a Small Company?

A Small Company in India, as per the Companies Act, 2013 (Section 2(85)), is a private company with a

• Paid-up Share Capital of up to ₹4 crore and Turnover of up to ₹40 crore,

Q3. What is a not a Small Company?

1. A public company.

2. A holding or subsidiary company.

3. A Section 8 (charitable) company.

4, A company governed by a special Act (e.g., banking or insurance).

Q4. Is PAS-6 now applicable to private limited companies?

Yes, w.e.f. 1st July 2025, Non-Small Private Companies are required to file Form PAS-6. Therefore, they need to file for the half year ending September 2025 first time. i.e., before November 2025

Q5. Can a company file PAS-6 without having dematerialized its shares?

Obtaining an ISIN is mandatory as you must mention the ISIN number in the Form PAS-6,but shares can be in physical form.

Q6. Should a company file form PAS-6 for various securities separately?

Yes, as only one ISIN can be inserted in the form PAS-6. Thus, for various types and classes of securities different forms are needed to be furnished. A company must furnish the form PAS-6 for every ISIN issued to it.

Q7. Should PAS-6 be filed if there is no change in shareholding?

Yes, it must be filed for every applicable half-year regardless of changes.

Q8. Can a company issue shares in physical form?

No. As per Rule 9A(1)(a) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a company is under obligation to issue fresh securities only in the Demat form.

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Complying with MSME Vendor Regulations in India

Home > Complying with MSME Vendor Regulations in India

MSME Vendor Compliance Overview

Timely Payment (Section 15, MSMED Act)

Pay within 45 days from acceptance of goods/services or agreed date.
Delayed payments attract 3x RBI bank rate interest (compound, monthly rests).
Non-deductible interest under Income Tax Act.

MSME Form I Filing (MCA Order, 2019)

What is it?

A form that companies must file if they haven’t paid MSMEs within 45 days.

Who needs to file?

Any company that buys from MSMEs and delays payment.

When to file?

For April–September → by October 31

For October–March → by April 30

What information is needed?

Supplier Name and PAN details
To which suppliers the payment was made within 45 days, paid after 45 days
To which supplier the payment is outstanding for 45 days or less, outstanding for 45 days or more.
Reason for the delay.

MSME Form-1 Filing Process

Verify MSME Status

Check Udyam Registration Number to confirm Micro/Small/Medium status. (Generally
mentioned in the invoice of the Vendor)
Maintain vendor database for
compliance tracking.

Penalties for Not Filing

What happens if you don’t file?

Fine up to ₹20,000, applicable to company and every officer in default
In case of ongoing non-compliance, an additional fine of ₹1,000 per day is imposed on both the company and every officer in default subject to a maximum limit of ₹3L.

MSME Vendor Compliance Overview

Annual Disclosures (Section 22, MSMED Act)

Report unpaid MSME dues, interest, and delay reasons in Board’s Report/Financial Statements.
Ensure accurate records for audit compliance.

Dispute Resolution (MSEFC)

Refer payment disputes to Micro and Small Enterprises Facilitation Council (MSEFC).
Resolution within 90 days; appeals require 75% deposit of awarded amount.

Other Compliances

TDS: Deduct applicable TDS as per Income Tax Act.
GST: Ensure proper invoicing and timely returns for MSME vendors.
RBI: Report MSME dues to banks for credit monitoring.

Best Practices

Track payments to clear dues within 45 days.
File MSME Form I on time via MCA portal.
Engage professionals (CA/CS) for compliance.
Build strong vendor relationships through timely payments.

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Year-end GST Checklist Steps to Smooth Transition

Home > Year-end GST Checklist Steps to Smooth Transition

As FY 2024-25 ends, ensure a seamless transition to FY 2025-26 with these essential GST tasks.

I. Outward Supplies: Get Your Records in Order

Reconcile GSTR 1 with GSTR 3B & GST Returns with Books of accounts and rectify any mismatches between books and filed returns.
Reconciliation of “E-Invoice and E-way bills” generated with actual sales
Check applicability of E-Invoice
From February 2025, reporting 6-digit HSN codes via dropdown is mandatory, as manual entry is disabled. The HSN master description will auto-fill the “Description as per HSN Code” field.
Ensure shipping bill details for the export of goods with payment of tax are correctly entered in GSTR-1 and transmitted to the ICEGATE portal for IGST refund claims.
Ensure all credit/debit notes are issued and reported in GSTR-1
Ensure tax liability against receipt of advances (services) and adjustment thereof to derive at unadjusted advances
Ensure correct bifurcation of B2B and B2C transactions in GSTR-1
In case of the export of goods/services without payment of tax, make sure to file application for LUT for FY 2025-26 on or before 31st March 2025.
Check tax compliance on branch/stock transfers
Ensure correct reporting of Taxable, Exempt, Non-GST and Nil-rated supplies
Verify if any corrections/amendments in invoices or details are required

II. Input Tax Credit (ITC) & RCM

1.Reconciliation of Input Tax Credit (ITC) as per Books and GSTR 3B:

While filing GSTR-3B as per Circular 170 of CGST Act and claiming ITC recorded in books and matched with GSTR-2B, it is essential to verify any discrepancies at the year end, such as:

ITC matched with GSTR 2B but missed to claim in GSTR-3B
ITC reversed in Table of Permanent Reversal [4(B)(2)] instead of Temporary Reversal [4(B)(1)] in GSTR 3B
RCM ITC wrongly reported in Regular ITC
Interchange claims of SGST /CGST as IGST and vice versa, etc

Note: Any such correction/ claim shall be made up to the October month return filed by 30th November of the subsequent Financial Year or filing of annual return, whichever is earlier.

2. Other Important points to check under ITC are:

Note: Rule 37 – Check for ITC reversal required on account of non-payment to vendors within 180 days or reclaim of any ITC in respect of supplies for which payment has been made.

3. Reverse Charge Mechanism (RCM):

• Reconcile expenses attracting RCM with amounts reported in GSTR-3B and books.

• Ensure GST is paid on RCM basis for imports of goods/services.

• Claim eligible ITC in GSTR-3B by November 30th of the following financial year or before filing of the annual return, whichever is earlier.

• Ensure correct reporting, payment and claiming of RCM in GSTR-3B.

III. Rule 96A Compliance (Exports under LUT/Bond)

1. Goods must be exported within 3 months from the invoice date.

2. Payment for export of services must be received in convertible foreign exchange/INR (as per RBI) within 1 year [or the period allowed under FEMA (9 months), including extensions] from the invoice date.

3. Regularly review compliance for each invoice; ensure no defaults before Financial Year ends.

4. Refund Timeline-

• Refund applications must be filed within 2 years from the relevant date as per the act.

• It may be noted that it is a regular activity to ensure that the refund is claimed periodically.

However, we shall check the same at the end of FY to plug any gap and apply for refund without any default.

IV. Other Compliances

If the conditions of Rule 86B are met, ensure that at least 1% of the total tax liability is paid in cash.
Obtain declarations from vendors exceeding the prescribed aggregate turnover threshold but exempt from e-invoicing under clause (s) of Rule 46.
Check for any GST TDS/TCS credit available on our GST Portal and claim the same after checking its authenticity from the books of accounts
Ensure registered persons with turnover up to ₹5 Cr opt in/out of the QRMP Scheme on time for seamless tax compliance
If opted for the Composition Scheme for FY 2025-26, ensure Form CMP-02 is filed by March 31, 2025.

Note:

1. Check whether the material sent for job work has been returned within the prescribed time limit (i.e. for Inputs – 1 year and for Capital goods – 3 years) and whether the same has been duly reported in ITC 04.

2. Ensure that goods sent on an approval basis are either returned within six months or sold with the issuance of a tax invoice to comply with regulations.

V. Credit Note Declaration Compliance

As per reference vide Circular No.-212/6/2024-GST-

Ensure that if the discount given by the supplier to a recipient through tax credit notes in a Financial Year exceeds ₹5,00,000/-, then the supplier must obtain a CA/CMA certificate from the recipient confirming ITC reversal.

If the discount given by the supplier to a recipient through tax credit notes in a Financial Year is up to ₹5,00,000, a self-declaration from the recipient is sufficient.

Note: To avoid a last-minute rush during assessments, it is advisable to maintain these documents for scrutiny, audit, or investigation.

VI. Input Service Distributor (ISD) Registration Requirement

(Effective from 01 April 2025)

Applicability

Any office of a supplier of goods or services or both that receives tax invoices for input services on behalf of distinct persons under Section 25.
It also includes invoices subject to reverse charge tax.

Mandatory Registration

Entities meeting the above criteria must register as an ISD under GST.
The ISD will distribute Input Tax Credit (ITC) in respect of such invoices to the respective recipients.

Action Required

Identify such offices/ entities on or before 31st March 2025.
Apply for ISD registration to comply with the new mandate.
This ensures proper ITC distribution and compliance with GST laws.

VII. The Hotel Industry!

Two major notifications were issued on 16th January 2025, impacting GST compliance for hotels and restaurants from 1st April 2025. Key changes as per notification no. are as follows-

Notification No. 05/2025 – CT (Rate)

Introduction of the “Specified Premises” concept (Hotels with high-value accommodations).

Removal of the “Declared Tariff” concept (Earlier tariff-based taxation is removed).

Mandatory Opt-In/Opt-Out Declaration before 31st March 2025.

Notification No. 08/2025 – CT (Rate)

E-Commerce Operators (like Swiggy, Zomato) will no longer be liable to pay GST on restaurant services provided in “Specified Premises”.

GST liability will now shift to restaurant owners, and they must pay 18% GST with Input Tax Credit (ITC) benefits.

Note-

What are “Specified Premises”?

1. Any hotel or restaurant where room rent exceeded ₹7500 per day in the previous financial year.

2. Any new hotel registering as a Specified Premises must file an Opt-In form (Annexure VII, VIII, IX).

Revised GST Rates from 1st April 2025

Standalone Restaurants (Not attached to any hotel) – 5% GST (No ITC)
Restaurants in Specified Premises (₹7500+ per day hotel rooms – 18% GST (ITC allowed)
Restaurants in hotels with room rent below ₹7500 per day – 5% GST (No ITC)

Important Notes:

Hotels falling under “Specified Premises” must file Opt-In Declaration (Annexure VII) before 31st March 2025.
New GST registrations must file Annexure VIII within 15 days of ARN generation.
For opting out, hotels/restaurants must file Annexure IX
Once an option is selected, it cannot be changed for the financial year unless an Opt-Out Declaration is filed.

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US Reciprocal Tariffs 2025

Home > US Reciprocal Tariffs 2025

1. Background

On April 2, 2025, the United States government introduced sweeping reciprocal tariffs on global imports. Effective April 5, a 10% blanket duty came into effect, followed by country- specific rates from April 9. India now faces a 27% tariff, while countries like China (34%) and Vietnam (46%) are subject to even steeper rates. This aggressive tariff regime marks a strategic shift in US trade policy, aimed at protecting domestic industry and correcting perceived trade imbalances.

2. Rationale Behind the US Tariffs

The US government justifies the move based on long-standing trade asymmetries:

• India’s high tariff rates on key US exports (e.g., autos, agricultural products, digital hardware).

• Non-tariff barriers including complex regulations, product approvals, and customs procedures.

Key Comparisons Highlighted by the US:

• Passenger Vehicles: US duty = 2.5%, India = 70%

• Apples: US = 0%, India = 50%

• Rice in Husk: US <3%, India = 80%

• Routers & Switches: US = 0%, India = 10–20%

These disparities have led the US to argue that if trade barriers are reduced, its exports to India could increase by over USD 5 billion annually.

3. Structure and Scope of Tariffs

The US Executive Order splits tariff implementation into two stages: Stage 1 (from April 5, 2025):

• A general 10% ad valorem tariff on all imports.

• Goods already in transit are exempt.

Summary of tariffs imposed on different countries

Country	Tariffs Charged to the USA (%)	U.S.A. Discounted Reciprocal Tariffs (%)
China	67	34
European Union	39	20
Vietnam	90	46
Taiwan	64	32
Japan	46	24
India	52	26
South Korea	50	25
Thailand	72	36
Switzerland	61	31
Indonesia	47	24
Malaysia	47	24
Cambodia	97	49
United Kingdom	10	10
South Africa	60	30
Brazil	10	10
Bangladesh	74	37
Singapore	10	10
Israel	33	17
Philippines	34	17
Chile	10	10
Australia	10	10
Pakistan	58	29
Turkey	10	10
Sri Lanka	88	44
Colombia	10	10

Stage 2 (from April 9, 2025):

• Country-specific reciprocal tariffs (India: 27%).

• Exemptions for goods with minimum 20% US-origin value.

• Overrides WTO and bilateral trade commitments.

4. Sectoral Exemptions: Industries That Escaped the Tariff Impact

HS Chapter	Category	Reason for Exemption
27	Mineral fuels and oils	Critical energy security
28-29	Chemicals	Industrial and pharma inputs
30	Pharmaceuticals	Public health considerations
44	Wood and wood articles	Construction materials
74	Copper and related products	Industrial relevance
85	Semiconductors	Tech supply chain dependency

These exemptions offer significant relief to Indian Exporters in pharmaceutical, energy and electronics sectors.

5. India’s Export Exposure: Sector-wise Tariff Impact

Sector	India’s Exports to US	Previous Tariff	New Tariff	Assessment Summary
Pharmaceuticals	USD 8.73B	0%	0%	Largely unaffected; under exemption list.
Auto Components	USD 2.1B	2.5%	25%	Tariffs increased significantly; global competitiveness affected.
Passenger Cars and Light Trucks (8702, 8703, 8704)	USD 10M	2.5%	25%	India’s exports to the US are negligible, hence this sector is not in focus from the tariff perspective as of now.
Textiles & Apparel	USD 9.5B	6–9%	33–36%	Heavily impacted; price sensitivity may hurt US-bound exports.
Telecom Equipment	USD 6B	0%	27%	Cost increase could reduce margin; relatively better than peers.
Gems & Jewellery	USD 9.2B	5.5– 13.5%	32.5– 40.5 %	High-value exports impacted; competition with USMCA members.
Agriculture & Food	USD 5.5B	4-5%	31-32%	Sectoral pressure expected; strong competition from Americas.
Oil & Gas	USD 5.8B	5.2%	5.2%	No change; listed in exempt categories.

US trade deficits and surpluses

Transfer Pricing Overhaul: Responding to Tariffs, Risk, and Regulation

1.Transfer Pricing in Transition: Adapting to Global Tariff Pressures

The reintroduction of reciprocal tariffs by the United States—now at 27% for Indian

imports—has amplified the intersection of trade policy and transfer pricing.

• These tariffs increase the landed cost of goods, affecting both related and unrelated party imports.

• For multinational enterprises (MNEs), this introduces a new layer of complexity: existing TP models may no longer reflect commercial reality.

• Higher costs absorbed by US importers or distributors without intercompany pricing adjustments can distort profitability and disrupt the arm’s length standard.

• When intercompany agreements are static, but trade realities shift, the compliance and audit risks rise significantly.

2.Commercial Impact: Pricing Models at a Crossroads

As tariffs inflate COGS, tested party margins often fall below benchmark ranges. Common TP methods like TNMM or RPM become harder to defend when tariff-loaded costs are not mirrored in comparable data. Businesses must consider:

Revisiting intercompany pricing to reflect new cost realities.

Adjusting TP documentation to explain short-term margin fluctuations.

Assessing if functions and risks have shifted due to supply chain restructuring.

Additionally, changes in procurement strategies (e.g., shifting from import-heavy to local sourcing) and currency fluctuations further challenge comparability. For companies using multi-year data, the year-on-year impact of tariffs can create volatility in TP analysis.

Transfer Pricing Overhaul: Responding to Tariffs, Risk, and Regulation

3.The APA Landscape: Need for Revalidation

Advance Pricing Agreements (APAs), previously seen as instruments of certainty, now face renewed scrutiny. Key APA-related implications include:

• Existing APAs: These may not account for sharp cost escalations due to tariffs. The critical assumptions underpinning them—such as market stability or cost structures—could be breached, calling for revision or renegotiation.

• New APA Applications: Companies must factor in tariff-inclusive cost modeling. This includes adjustments to tested party profitability, selection of comparables, and setting realistic benchmarks.

• Bilateral APAs (BAPAs): Especially for US-India transactions, BAPAs offer a coordinated approach between tax authorities. However, the negotiation process may become more complex due to divergent views on tariff impacts.

• Rollback Requests: Tariff shifts may render rollback years incomparable unless the impact can be normalized and documented.

4.Growing Role of MAP in Dispute Resolution

As tax authorities reassess profitability outcomes influenced by trade policy, Mutual Agreement Procedures (MAP) will become an essential tool. Key considerations:

• MAP may be invoked when unilateral adjustments by one tax authority (e.g., disallowing a TP loss) conflict with positions in the counterparty jurisdiction.

• Double taxation is more likely in cases where US importers report lower profits due to tariffs but Indian exporters are expected to maintain fixed returns.

• MAP discussions will need to include robust economic justifications and evidence that tariff-related margin erosion is commercially driven—not tax motivated.

Transfer Pricing Overhaul: Responding to Tariffs, Risk, and Regulation

5.Customs Valuation and TP: A Tightrope Walk

Tariff increases intensify the challenge of aligning customs valuation with transfer pricing:

• Post-import price adjustments may be rejected by customs if seen as duty avoidance.

• Discrepancies between customs filings and TP documentation heighten audit and penalty risks.

• Closer coordination between tax and trade teams is critical to ensure consistency and mitigate risk.

6. Strategic Realignment in a Shifting Trade Landscape

With trade and tax rules evolving rapidly, transfer pricing must shift from static compliance to agile strategy. Key actions for MNEs include:

• Reviewing intercompany agreements, tested party selection, and pricing models.

• Updating FAR profiles to reflect revised supply chains and functional roles.

• Considering APAs for prospective certainty and MAPs for existing disputes.

• Strengthening documentation with tariff-aware benchmarking and scenario analyses.

Rising tariffs, regulatory scrutiny, and global risks are driving a shift in transfer pricing strategies. Multinationals must enhance transparency, align with value creation, and ensure compliance to manage risk and adapt to evolving global tax demands.

India Union Budget 2026-27

Key Proposals

A. Budget anchored on Viksit Bharat with 3 Kartavya:

B. Direct Tax, Transfer Pricing & Indirect Tax – Snippet:

Key Proposals

C. Individual Income-tax:

I. Transfer Pricing Proposals

II. Direct Tax Proposals

III. Indirect Tax Proposals – GST

Indirect Tax Proposals – Customs

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