New Delhi: Niti Aayog, the government’s policy think tank, has put forward a proposal for an optional presumptive taxation scheme aimed at simplifying tax compliance for foreign companies while ensuring greater certainty in India’s taxation regime.
The working paper released on 3 October noted that the scheme would help address long-standing disputes around the concept of permanent establishment (PE), which has been a key source of litigation between multinational firms and Indian tax authorities. By offering an alternative compliance route, the framework is designed to balance India’s taxation rights with the need to create a clear and predictable environment for investors.
According to the proposal by Niti Aayog, foreign companies opting for the scheme would be able to declare income at a prescribed rate without the need to maintain detailed books of account for tax audits. Sector-specific deemed profit rates and a “safe harbour” mechanism have also been suggested, preventing tax authorities from raising separate challenges on PE status for activities covered under the scheme. Firms would retain the flexibility to opt out and file regular returns if their actual profits fall below the presumptive rate.
The paper further recommended codifying PE and profit attribution rules in domestic law to align with international practices, while discouraging retrospective amendments. It also stressed the importance of training tax officers for consistent application of the law, especially in digital and cross-border transactions.
Releasing the paper, Niti Aayog CEO BVR Subrahmanyam said a predictable tax system is essential for attracting investment, creating jobs, and supporting India’s vision of becoming a developed economy by 2047. He highlighted that reforms across sectors are gaining momentum under the Prime Minister’s guidance, with tax certainty being a crucial element of a conducive business environment.
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