Budget 2025 Expectations | Raise the threshold for mandatory international TP documentation to Rs 10 crores, says Rajiv Bhutani, Partner, Transfer Pricing, Tax & Regulatory Services, BDO India

Finance Minister Nirmala Sitharaman will present the 8th consecutive Union Budget on February 1, 2025. Reports suggest that the government is mulling over cutting income tax for those who are earning up to Rs 15 lakh a year in February's budget, in turn providing relief to the middle class.

Taxpayers have pinned high hopes on the Union Budget FY 2025-26 documents and are keeping their fingers crossed regarding their expectations from the government's most important financial document of the year.

Here's what Rajiv Bhutani, Partner, Transfer Pricing, Tax & Regulatory Services, BDO India has to say--

Compliance
Maintenance of TP Documentation: Since the introduction of TP provisions in 2001, the threshold for maintaining TP documentation for taxpayers has been set at Rs 1 crore in aggregate value of international transactions.

However, as businesses expand and related-party transactions increase, this threshold appears outdated. The expectation is to raise the threshold for mandatory TP documentation to Rs 10 crores, in line with the growing scale of multinational enterprises in India.

Exemption of Non-Residents from TP Certification: Currently, non-resident taxpayers earning income from interest, dividends, royalties, or technical fees, do not need to file their income tax return in India, provided taxes have been appropriately deducted on said income by the taxpayer. However, these taxpayers are still required to mandatorily furnish a TP Certificate if such taxable income is earned from parties in India. Given that these non-resident taxpayers are exempted from furnishing their income tax return subject to meeting the above-stated conditions, it is recommended that such taxpayers should also be exempted from furnishing the TP certificate, aligning with the broader tax compliance simplification.

Recalibration of the Arm’s Length Range: Under the existing TP regulations, India uses an arm’s length range between the 35th and 65th percentiles while determining arm’s length pricing. However, this range diverges from internationally accepted standards. To align India’s regulations with global norms, the expectation is to revise the range to an interquartile range, spanning from 25 th percentile to the 75th percentile, which better reflects the true variability in arm’s length pricing.

Dispute Management and Resolution
Expedited Advance Pricing Agreement (APA) Process: The APA regime has been a powerful tool for Indian taxpayers looking to mitigate related-party transaction disputes and achieve certainty on their arm’s length pricing. While the APA program has been successful as compared to traditional dispute resolution routes delays in processing APA applications have resulted in a significant backlog.

To enhance efficiency, we recommend streamlining the APA process by categorizing applications based on their complexity. Complex cases could be allocated to more experienced teams, while simpler cases should be subject to shorter timelines for resolution. This bifurcation would enable faster conclusions, benefitting both the tax authorities and taxpayers.

Expansion and Re-evaluation of Safe Harbour Provisions: Plenty of small taxpayers have opted for the Safe Harbour regime in order to conclude their arm’s length pricing in a streamlined manner. However, the applicable benchmarks are typically higher in this regime as compared to available alternatives. While the small taxpayers do get to enjoy this benefit of convenience, the threshold restrictions in the Safe Harbour regime make it inaccessible to the taxpayers with comparatively higher value of transactions, forcing them into complex dispute resolution processes. To make this regime more accessible, the Government may re-evaluate the Safe Harbour provisions by (a) increasing the transaction thresholds to cover a larger number of companies, and (b) adjusting the rates to be closer to actual comparable benchmarks, thereby encouraging broader adoption andreducing litigation risks."

Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.