Indian Finance Ministry has released the country’s 2025 Budget, which includes key international tax changes.
The Budget proposes to amend Explanation 2A to section 9(1)(i) of the Act so that transactions or activities of a non-resident in India which are confined to the purchase of goods in India for the purpose of export shall not constitute significant economic presence of such non-resident in India.
Explanation 2A provides that the significant economic presence of a non-resident in India shall constitute “business connection” in India, and “significant economic presence” for this purpose shall mean transaction in respect of any goods carried out by a non-resident with any person in India.
The Memorandum published alongside the Budget states that owing to the definition of significant economic presence, the specific exclusion provided in the case of a non-resident, for income arising through or from operations which are confined to the purchase of goods in India for the purpose of export, may be denied and such income may also be treated as income deemed to accrue or arise in India.
The Budget proposes to provide that the arm’s length price determined in relation to an international transaction for any previous year shall apply to the similar transaction for the two consecutive previous years immediately following such previous year.
The Memorandum states: “It has been noted that…in many cases, there are similar international transactions for various years, same facts like enterprises with whom such transaction is done, proportionate quantum of transaction, location of associated enterprises etc., and same arm’s length analysis are repeated every year, creating compliance burden on the assessee as well as administrative burden on the Transfer Pricing Officers. In view of the same, in such situations, it is proposed to carry out TP assessments in a block.”
The proposals are intended to take effect from April 1, 2026.