Publish Date
Feb 09, 2025
India Tax Update
The Union Budget 2025 outlines an inclusive growth agenda and has implemented various measures to revive consumption and investment momentum as well as to increase the confidence of foreign investors in the Indian economy. [1]
The key proposed amendments are as under:
Foreign direct investment (‘FDI’) in insurance
FDI in insurance is proposed to be increased to 100 percent from the current limit of 74 percent and will be available for those companies which invest the entire premium in India.
This move will open the gates for new foreign players in an underpenetrated insurance sector. One hundred percent FDI will provide long-term growth capital, improve competitiveness, and generate employment opportunities. It will also bring in more players in the market by eliminating the need for foreign investors to find Indian partners for the balance 26 percent, enabling ease of doing business.
Introduction of new income tax bill
A new simplified income tax bill is to be introduced this week to increase tax certainty, reduce litigation, and achieve good governance. The new bill is expected to be concise (shortened to about half the length of the text / chapters contained in the present law).
Sovereign wealth funds (‘SWFs’) & pension funds (‘PFs’):
The exemption of income received, in the form of dividend, interest, long-term capital gains (‘LTCG’) or certain other incomes, by SWFs and PFs from its investment in India in the infrastructure sector during the period April 1, 2020, to March 31, 2025, has been extended by five years to March 31, 2030.
LTCG (including those which are deemed as short-term capital gains arising from investments made in unlisted debt securities) shall be exempt in the hands of SWFs and PFs.
This extension for making investments by five years will provide certainty and clarity to SWFs and PFs for their Indian investments, thereby giving a boost to the infrastructure sector in India. This move is expected to bring meaningful investment in the next five years.
Transfer pricing
Arm’s length price (‘ALP’) determined in relation to an international transaction or a specified domestic transaction shall apply to a similar transaction for a total period of three years.
This amendment will:
Discontinuation of TCS on sale of goods
A seller of goods (including sale of shares) was required to collect the tax at source (‘TCS’) at 0.1 percent of the sale consideration exceeding INR 5 million, subject to certain conditions if no withholding tax or tax deducted at source (‘TDS’) was deducted. Thus, either a seller is responsible for collecting TCS from the buyer or the buyer is required to deduct TDS on payments made to the seller for the same transaction, which required understanding the other person’s turnover.
To simplify business operations and reduce the compliance burden on taxpayers, the provisions of TCS on sale of goods are proposed to no longer apply from April 1, 2025. In other words, only TDS will now be applicable on payments made by the buyer to a resident Indian seller at 0.1 percent of the sale consideration exceeding INR 5 million.
This will help all investors (including foreign buyers) who were otherwise required to shell extra money in case TCS provisions were triggered. While the credit was available, additional compliances in the form of return filing, etc., were required to be undertaken to claim the refund of the TCS paid.
Presumptive taxation scheme for non-residents
New presumptive taxation has been proposed for non-residents providing services / technology for setting up an electronics manufacturing facility.
The proposal deems 25 percent of the total amount that a non-resident receives or is due to receive for providing services or technology as ‘profits or gains’. This will result in an effective tax payable of less than 10 percent, on gross receipts by the non-resident.
This move will encourage investments and boost the confidence of foreign investors to infuse funds for the development of semi-conductors and the overall development of the manufacturing ecosystem in India.
Incentives for International Financial Services Centre (‘IFSC’)
The sunset date for tax incentives for IFSC units in aircraft / ship leasing and fund relocation has been extended to March 31, 2030.
Exemption to non-residents on specified income from derivative contracts issued by IFSC banking units has been extended to such contracts entered with foreign portfolio investors or FPIs set up in the IFSC.
These amendments encapsulate a decisive roadmap for India’s economic empowerment, strategic investments, and a future-ready economy.
For more information on how these key updates affect your business, please reach out to the A&M Tax Team for support.
[1] India Budget | Ministry of Finance | Government of India.
