Legal

FM proposed a committee for regulatory reforms and rationalized Transfer Pricing, ET LegalWorld

In the Union Budget 2025, Finance Minister Nirmala Sitharaman proposed in her Budget speech a high-level Committee for regulatory reforms will be set up for a review of all non-financial sector regulations, certifications, licenses, and permissions. The committee will be expected to make recommendations within a year. The objective is to strengthen trust-based economic governance and take transformational measures to enhance ‘ease of doing business’, especially in matters of inspections and compliances. States will be encouraged to join in this endeavor.

Budget 2025 on Transfer Pricing

Rationalization of transfer pricing provisions for carrying out multi-year arm’s length price determination. It is proposed to provide that the transfer pricing provisions for arm’s length price determination in relation to similar transactions shall now be applicable for a period of 3 years.

Currently, where a taxpayer has entered into ‘International transactions’ or specified domestic transactions, a reference is made to the transfer pricing officer (“TPO”) to determine the arm’s length price. In order to reduce the compliance and administrative burden of the TPO as well as the taxpayers wherein arm’s length exercise is required to be determined for every year having similar international transactions, an option of a block transfer pricing assessment (“Block TP Assessment”) has been introduced.

“Overall, in line with expectations, the government continues its emphasis on infrastructure, agri sector and ‘startups’ ecosystem. If executed properly, the budget is likely to revitalize the Indian economy, which has been experiencing a slowdown,” said Sanjay Sanghvi, Partner, Khaitan & Co.

Taxpayers having similar international transactions or specified domestic transactions for various years will have an ‘option’ to opt for block TP assessment and the ALP determined for any previous year will also apply for following 2 (two) consecutive years.

Further, there was some uncertainty in the characterization of income arising from transactions in securities as to whether it would be capital gains or business income for registered Category-I and Category-II AIFs. It has been proposed that securities held by such AIFs would be treated as capital assets and any income arising therefrom will be treated as capital gains.

  • Published On Feb 1, 2025 at 03:13 PM IST

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