NEW DELHI: Niti Aayog on Friday proposed a presumptive taxation scheme for foreign companies, aimed at providing clarity, simplicity, and certainty in the tax regime.
In its working paper, the think tank said the optional scheme would help resolve disputes related to permanent establishment (PE), streamline compliance, and safeguard revenue. “The proposed presumptive taxation scheme is a proactive and pragmatic solution to a long-standing issue. It balances India’s sovereign right to tax with the need to offer certainty and simplicity to foreign investors,” the paper stated.
The document highlighted that despite India’s strong FDI growth and inherent appeal, unclear PE regulations create tax uncertainty, discouraging investment. It recommended codifying PE and attribution principles into domestic law, aligned with global norms, without resorting to retrospective amendments. “By adopting a presumptive taxation scheme, India can transform its tax regime from a ‘minefield’ into a ‘well-lit path,’ enhancing its position in global business rankings,” it added.
Under the scheme, companies would declare income at a prescribed rate and be exempt from maintaining detailed books of accounts for audits. The paper suggested sector-specific deemed profit rates and noted that companies could opt out if actual profits fall below the presumptive threshold. It also recommended providing a safe harbour by preventing tax authorities from separately disputing the existence of a PE for the activity.
To ensure consistent application, the paper advised training tax officers, particularly for complex digital and cross-border cases, to reduce subjectivity.
Commenting on the release, Niti Aayog CEO BVR Subrahmanyam said, “A stable, certain, and predictable tax regime is critical for investment and economic growth. Uncertainty is not good for investors or business.” He added that achieving the vision of a Viksit Bharat by 2047 requires rapid growth, job creation, and a predictable business environment. “Thanks to the guidance of the Prime Minister, reforms are now being implemented across various sectors of the economy,” Subrahmanyam noted.
