Why in the News?
NITI Aayog has released a working paper recommending the introduction of an optional presumptive taxation scheme for foreign companies operating in India.
What is Presumptive Taxation?
- Overview: Presumptive taxation allows taxpayers to declare income at a fixed percentage (presumed rate) of total turnover or receipts without maintaining detailed books of accounts.
- Purpose: Simplifies taxation for small businesses or specific sectors by reducing compliance and administrative burden.
- Domestic Example: Under the Income Tax Act, Sections 44AD, 44ADA, and 44AE permit presumptive taxation for small businesses, professionals, and transporters.
- Key Feature:
- Tax is levied on deemed profits instead of actual income.
- Taxpayers opting for this scheme are exempt from detailed audits or complex record-keeping.
What has NITI Aayog Proposed?
- Scope: Extend the presumptive taxation concept to foreign companies operating in India.
- Objective: To reduce litigation related to Permanent Establishment (PE) status and profit attribution in cross-border taxation.
- Main Features:
- Optional Scheme: Foreign companies can either choose the presumptive scheme for certainty or file regular returns if actual profits are lower.
- Sector-Specific Rates: Different deemed profit rates for sectors such as manufacturing, digital services, and logistics.
- Safe Harbour Clause: Once a company opts in, tax authorities cannot separately litigate the PE existence for that activity.
- Alignment with Global Norms: Codify PE and attribution principles in domestic law consistent with OECD standards.
- Administrative Reforms: Training of tax officials to ensure consistent application in digital and cross-border cases.
Significance:
- Provides tax certainty and simplicity for foreign investors.
- Reduces disputes and promotes ease of doing business.
- Balances India’s sovereign tax rights with the need for a predictable, investor-friendly regime.
- Positions India as a more attractive FDI destination, aligned with its economic and tax reform agenda.
| [UPSC 2020] With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?
1. It is introduced as a part of the Income Tax Act. 2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”. Select the correct answer using the code given below: Options: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 * |
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
