India Budget Analysis 2026-27

For International Business Community

Budget Miss: Why India Needs Big-Bang Reforms to Win Global Markets

India’s recent Budget, like several before it, has focused on micro-reforms—rationalising rates, simplifying tax procedures, improving ease of doing business, and digitising compliances. These steps were necessary and constructive. They have stabilised the macroeconomy, strengthened tax collection, and improved administrative efficiency.

But while micro-reforms reduce internal friction, they do not, by themselves, address the larger structural challenges India faces in an increasingly competitive global economy.

Today, global investors are not merely comparing headline tax rates. They are making long-term decisions about where to locate factories, data centres, research facilities, and innovation hubs. In that competition, India is being measured against Vietnam, Mexico, Eastern Europe, and other emerging platforms that combine efficiency with predictability, openness, and global integration.

At this stage of India’s growth, incrementalism is no longer enough. The moment calls for a shift—from micro to macro, from operational fixes to Big-Bang reforms that fundamentally reposition India in the global marketplace.

Here are a few suggestions:

1. IDRs: Elevating India’s Global Financial Standing

Indian Depository Receipts (“IDRs”) enabling a direct listing of foreign companies on Indian markets, represent a powerful opportunity to elevate India’s capital markets and integrate them more deeply with global finance.

Crucially, the legislative foundation for this is already in place, albeit dormant. Although the Companies (Issue of Indian Depository Receipts) Rules were notified on February 23, 2004, followed by SEBI regulations in 2006 and RBI operational guidelines in 2009, the framework failed to take off due to tax and other structural constraints. The enabling law continues to exist; it requires refinement rather than replacement.

There is significant interest among high-quality foreign companies—particularly from the United States—to access Indian public markets. However, under the current framework, foreign companies are effectively required to reincorporate in India in order to list. For many, this is commercially unviable. In the case of U.S. companies, such reincorporation is treated as a corporate “inversion” under U.S. tax law, triggering immediate and substantial exit taxation. This has become a decisive deterrent for otherwise willing issuers.

Enabling direct listing of foreign companies in India, including through a refined and fully fungible IDR framework, would eliminate these inversion-related barriers and unlock a pipeline of globally reputed companies seeking long-term engagement with Indian markets.

For India, such listings would deepen and diversify domestic capital markets, enhance liquidity and price discovery, and strengthen the global credibility of Indian stock exchanges as platforms for international capital formation. Indian investors would gain direct access to high-quality global companies within the Indian market framework—without overseas remittances or foreign trading accounts—thereby improving diversification while retaining domestic savings within India. Foreign issuers, in turn, would benefit from efficient access to India’s large and growing investor base, enhanced brand visibility, and the ability to deploy capital for Indian expansion or acquisitions within a predictable regulatory environment.

This is not a concession to foreign capital; it is an assertion of India’s confidence as a global financial centre.

2. Crypto and Digital Assets: From Suppression to Structured Leadership

Cryptocurrency, blockchain and digital assets are no longer fringe phenomena. They are reshaping global finance, payments, settlement systems and capital formation. India’s current posture—characterised by high taxation, regulatory ambiguity and technological scepticism—has produced a lose-lose outcome: innovation is driven offshore, while regulatory risk remains unresolved.

A Big-Bang reform would replace suppression with structured, state-led regulation.

This requires a clear licensing framework for exchanges, custodians and intermediaries; robust KYC (“Know Your Customer”)/AML (“Anti-money Laundering”) and cybersecurity standards; and a rational tax architecture that encourages compliance, transparency and custodial safety.

To institutionalise this approach, India should establish a Crypto Promotion and Regulatory Agency (CPRA) with three core mandates:

1. Regulation and Oversight: Licensing of exchanges, custodians and stablecoin issuers; enforcement of KYC, AML, cybersecurity and consumer-protection norms; and alignment with global standards such as FATF (Financial Action Task Force) and BIS (Bank for International Settlements).
2. Facilitation and Innovation: Promotion of credible use cases in cross-border payments, tokenised assets and smart-contract-based public infrastructure; creation of regulatory sandboxes; and a controlled passporting regime (that allows a company licensed in one jurisdiction to do business in other jurisdictions without needing to obtain a separate license for each new jurisdiction).
3. Market Development and Investor Protection: Clear taxation rules, custody and reporting standards, dispute-resolution mechanisms, and the introduction of regulated products such as ETFs (Exchange Traded Funds), custody and staking within the formal financial system.

This is not deregulation. It is disciplined, forward-looking governance that positions India as a responsible digital-asset jurisdiction.

3. Freeing the Rupee: Claiming India’s Global Economic Role

India’s strong foreign-exchange reserves, stable external position and digital infrastructure create a rare opportunity: to decisively liberalise the rupee and treat it as a genuinely convertible currency for both current and capital account transactions, subject to standard KYC and AML safeguards. In this context, while the Finance Bill, 2026 (“Bill”) proposes to reduce the rate of tax collection at source (“TCS”) on remittances for medical and education purposes to 2% (from 5%), the TCS rate on all other remittances under the Liberalised Remittance Scheme continues to remain at 20%, reflecting a calibrated but still cautious approach to outbound capital flows.

This would be a strategic signal—not a technical tweak. It would empower Indian companies to invest and acquire globally, allow Indian investors genuine portfolio freedom, and attract long-term global savings seeking open, liquid and credible markets.

With this move, India would transition from being primarily a recipient of capital to becoming a major exporter of capital, services and innovation—asserting its role as a central pillar of the global economic architecture.

4. The Big-Bang Mindset: Institutional Credibility Over Incentives

What global investors, innovators, and talent ultimately seek is not just marginal incentives or production-linked subsidies, but certainty, the rule of law, and credibility.

The current Bill sends a conflicting signal. While it aims for simplification, it simultaneously executes a systematic reversal of key judicial rulings in favor of the Revenue. Retrospective alteration of the law to override court judgments on limitation periods, jurisdictional defects, and procedural safeguards, while might provide certainty at ground level, however, the government has clearly signalled that judicial recourse can be rendered moot by legislative amendments.

Furthermore, the refusal to provide grandfathering provisions—epitomized by the watershed stance on Tiger Global —marks a pivotal moment for foreign investors. It suggests that tax treaty benefits, and legal positions adopted in good faith are subject to retroactive invalidation.

To become a true global destination, India must move from a transactional policy mindset—where laws are patched retrospectively to cure administrative defeats—to a transformational one. This must be built on:

1. True legal stability and finality: A commitment that the government will accept adverse judicial rulings rather than legislating them away retrospectively. Investors need a regime where the rules of the game are not rewritten after the game has been played. The finality of a court order must mean finality, not a trigger for a retroactive amendment that prioritizes administrative convenience over taxpayer certainty.
2. A drastic reduction in litigation timelines: Tax disputes in India currently suffer from a debilitating 15–20 year lifecycle as they traverse from the Assessing Officer to the Supreme Court. A transformational economy cannot function on decadal dispute cycles. The goal must be to compress this timeline, ensuring rapid, binding resolution.
3. A Transparent Framework: A roadmap for foreign investment and dispute resolution where legitimate expectations, such as those regarding treaty benefits are honored. Institutional trust, once established, compounds faster than any subsidy. Conversely, the perception that the house always wins —by changing the rules if necessary—erodes that capital instantly.

5. The Opportunity Before India

The world is reorganising supply chains, data flows and digital infrastructure. India has the talent, scale and digital public infrastructure to become a global platform—not merely a back-office, but a hub for creation, innovation and high-value manufacturing.

To seize this moment, India must offer more than efficiency. It must offer openness, capital freedom and long-term predictability. That requires bold, irreversible Big-Bang reforms—not incremental comfort-zone budgeting.

The time has come to move from micro to macro, from caution to confidence. Otherwise, India risks winning the efficiency race while losing the global game.

By Nishith Desai

Founder, Nishith Desai Associates, Global Strategic Legal Counsel with AI Assistant

Table of Contents

A. Tax Rates

1. 1.  Companies

2. 2.  Individuals

3. 3.  Co-operative Societies, Firms, and Local Authorities

4. 4.  Tax rates for Securities Transaction Tax (“STT”):

B.  Key Updates

1. 1.  Buyback taxation

2. 2.  Revamp of Minimum Alternate Tax provisions

3. 3.  Exemptions for eligible non-residents

4. 4.  Clarity for global cloud service providers

5. 5.  Reversal of key judicial rulings

   1. 5.1  Statutory clarification of time limitation for TPO orders

   2. 5.2  Settling the JAO VS. FAO controversy

   3. 5.3  The DIN controversy

   4. 5.4  Clarifying interplay of DRP and statute limitation timeline

6. 6.  Transfer pricing certainty for IT/ IteS

7. 7.  Integration of assessment and penalty proceedings

8. 8.  Reduction in Pre-deposit Amount

9. 9.  IFSC reforms: strengthening India’s financial services fub

A. Tax Rates 

1. Companies

1. No Change in Tax Rates for Domestic Companies: Domestic companies opting for the concessional tax regimes will continue to be taxed at 22% and 15%, respectively, with a surcharge of 10% in both cases. Domestic companies not availing the concessional tax regimes will continue be taxed at 30% or 25%, depending on their turnover for the previous year. Specifically, a 25% tax rate applies if the turnover is up to INR 4,000 million, and a 30% tax rate applies otherwise. The surcharge rates for these companies remain at 7% for total income exceeding INR 10 million but up to INR 100 million, and 12% for total income exceeding INR 100 million.
2. Unchanged Tax Rates for Foreign Companies: Foreign companies are taxable at rate of 35%. The surcharge rates remain unchanged: 2% on total income exceeding INR 10 million but up to INR 100 million, and 5% on total income exceeding INR 100 million.

2. Individuals

Under Section 87A, an individual resident in India with an income below INR 0.7 million is eligible for a 100% tax rebate. This threshold was raised to INR 1.2 million through the Finance Act of 2023, while also raising the rebate limit from INR 25,000 to INR 60,000. These limits remain unchanged for tax year 2026-27, sustaining the focus on a more equitable tax system and continued relief for middle-income groups.

3. Co-operative Societies, Firms, and Local Authorities

For the tax year 2026-27, the tax rates and surcharges for co-operative societies, firms, and local authorities remain same as those specified for tax year 2026-27.

4. Tax rates for Securities Transaction Tax (“STT”):

The Finance Bill, 2026 (“Bill”), proposes an increase in the Securities Transaction Tax (“STT”) rates applicable to futures and options (“F&O”) transactions. As the Indian derivatives markets witness exponential growth in scale, the government has moved to curb excessive speculation by raising the transaction costs for traders. The revised rates are applicable from April 1, 2026.

B.  Key Updates 

1. Buyback taxation

In the Finance Act, 2024, Parliament abolished the buy-back distribution tax (“BBT”) under Section 115QA of the Income Tax Act, 1961 (“Old Act”)¹ and enacted a new framework for taxing share buy-backs. The new framework shifted the incidence of tax from the company back to the shareholder, broadly mirroring the post-2020 regime applicable to dividends, and recharacterized the consideration received by the shareholders as dividend income, rather than as capital gains.² However, the new framework delinked deemed dividend taxation from the concept of accumulated profits.³

The new framework was criticised for its structural shortcomings. First, by taxing the entire buy-back consideration as dividend income, the framework operated, in part, as a tax on capital rather than on income i.e., shareholders were subjected to a tax on amounts that economically represented a return of invested capital. Second, while the tax liability on the deemed dividend arose upfront, no assurance existed that the corresponding capital loss could be utilised in the same year – or at all – given that utilisation was contingent on the existence of future capital gains, thereby deferring (and potentially denying) economic relief.

Against this backdrop, the Bill proposes to roll back the 2024 framework. The Bill proposes to restore the treatment of buy-back proceeds as capital gains, with shareholders entitled to deduct the cost of acquisition in accordance with the ordinary capital gains computation provisions – effectively eliminating the tax-on-capital and timing mismatches inherent in 2024 framework.

However, the Bill also proposes to introduce an additional layer of tax on capital gains arising to ‘promoters⁴’ from buybacks. Where the shareholder is a promoter, the aggregate tax payable on capital gains arising from a buy-back would comprise:

• the income-tax payable at the ordinarily applicable capital gains tax rates; and
• an additional income-tax on such capital gains at the rate of prescribed rates, which vary based on (i) whether the gains are short-term or long-term, and (ii) whether the promoter is a domestic company or not.⁵

The Memorandum justifies this differential treatment by pointing to the distinct position and influence of promoters in corporate decision-making, particularly in relation to buy-back transactions.

However, the Bill’s differential treatment of ‘promoters’ is unpersuasive and raises a host of unanswered questions. The suggestion implicit in the Memorandum appears to be that a promoter, by virtue of his position, can influence corporate decision-making to favour buybacks over dividends, thereby extracting value in a tax-efficient manner through capital gains rather than dividend income. However, it is far from clear that the degree of control a shareholder is assumed to enjoy, or the size of a shareholder’s stake in a company, are the most appropriate bases on which the taxation of buyback proceeds should turn.⁶

Such criteria may make sense in extreme cases of concentrated ownership and effective control. However, the Bill proposes to treat anyone who holds, directly or indirectly, more than 10% in an unlisted company as a promoter. It is questionable whether a person holding a greater than 10% stake in a company would ordinarily enjoy the level of control required to dictate the mode of profit distribution or capital return. To this extent, the choice of a 10% threshold appears arbitrary, particularly in the absence of any clear linkage to actual control or decision-making influence.

The Bill also does not provide any guidance on how the relevant shareholding percentage is to be determined for the purposes of applying the 10% threshold. It does not specify whether the threshold is to be assessed by reference to equity shareholding alone or on a fully diluted basis, accounting for equity-linked instruments such as convertible preference shares or debentures. This lack of guidance is likely to create uncertainty in how the promoter threshold is applied in practice.

The Bill also does not lay down any rules for determining indirect ownership for the purposes of identifying a “promoter” or for applying the additional tax. In particular, where a person is treated as a promoter because ownership is attributed to him through intermediary entities, it is unclear whether the additional tax is intended to apply to the person to whom such ownership is attributed – even where such person does not directly receive the buy-back proceeds – or to the entities that legally hold the shares, even if those entities do not independently qualify as promoters. The absence of any attribution or look-through rules in this regard creates material uncertainty that is likely to give rise to interpretational disputes in practice.

Compounding this uncertainty is the fact that the Bill defers to the definitions of “promoter” under the Companies Act, 2013 and the SEBI regulatory framework, both of which determine promoter status, inter alia, by reference to the degree of control or influence exercised over the company. As a result, any determination that a person is a promoter is likely to involve a highly fact-intensive and context-specific inquiry. Given the absence of clear statutory markers or safe harbours, this approach will likely be prone to subjective interpretation and dispute.

Under the proposed amendments, long-term capital gains arising to non-resident corporate from buybacks would be subject to an effective tax rate of 30%. Short-term capital gains would be subject to an effective tax rate of 45%, reduced to 30% in the case of listed equity shares. The resulting equivalence in tax treatment between long-term and short-term gains on listed equity is striking and departs from the long-standing policy distinction between short-term and long-term capital gains. That said, the rollback of the 2024 framework may offer a limited but important benefit for certain non-resident shareholders. With buy-back proceeds once again characterised as capital gains, non-residents who are entitled to treaty protection may be able to claim exemption from Indian capital gains tax under applicable tax treaties – such as in the case of grandfathered investments under the India-Singapore and India-Mauritius tax treaties, or under treaties like the India-Netherlands tax treaty. While the class of non-residents able to successfully claim such relief has narrowed considerably in recent years due to treaty amendments, limitation of benefits provisions, and domestic anti-avoidance rules, the restoration of capital gains treatment reopens a pathway to treaty-based relief that had been effectively foreclosed under the dividend recharacterization approach adopted in 2024.

Overall, while the Bill corrects some of the flaws introduced by the 2024 framework, it does so in a manner that introduces fresh complexity and uncertainty. The promoter-specific surcharge, the absence of clear rules for determining control, shareholding thresholds and indirect ownership, and the resulting convergence in effective tax rates – particularly for non-resident corporate promoters – will do little to enhance the attractiveness or certainty of buybacks as a mode of profit distribution and capital return, and instead risks substituting one set of distortions with another.

2. Revamp of Minimum Alternate Tax provisions

The Bill has introduced a shift in the corporate taxation landscape by overhauling the Minimum Alternate Tax (“MAT”) framework. MAT was introduced to ensure that companies reporting significant book profits do not consistently avoid payment of income-tax under the normal provisions. MAT provisions mandate that if the income-tax payable on total income under normal provisions is less than 15% of the book profit, the tax payable is the higher of the income-tax payable under normal provisions or 15% of the book profit.

The Old Act provided that in case where a company pays MAT, the excess of MAT liability over the normal tax liability is allowed as a MAT credit. The Old Act allowed this credit to be carried forward for up to 15 assessment years and set off in future years where the normal tax liability exceeds the MAT liability.⁷ This mechanism effectively treats MAT as an advance payment of future tax liabilities.

2.1  Introduction of the Concessional Tax Regime 

Both the Old Act and the Income-tax Act, 2025 (“New Act”) provide that the taxable income of a domestic company with turnover not exceeding INR 4000 million is taxable at the rate of 25%, while other domestic companies are taxable at the rate of 30%. The taxable income of a foreign company is taxable at the rate of 35%.

In 2019, the government introduced a landmark reform by introducing Section 115BAA to the Old Act (now replaced by Section 200/205 of the New Act) reducing the corporate tax rate to 22%⁸ for domestic companies, provided they forego specified exemptions and incentives. Furthermore, Section 115BAB was also introduced to the Old Act (now replaced by Section 201/205 of the New Act), offering a further reduced tax rate of 15%⁹ for new domestic manufacturing companies, subject to certain conditions. Section 115BAA and section 115BAB are hereinafter referred to as “Concessional Tax Regime“. Alternatively, companies which do not choose to be taxed under the Concessional Tax Regime, continue to pay taxes at normal corporate tax rates while claiming deductions and exemptions.

Crucially, Section 115JB(5A) (now replaced by Section 206(1)(q) of the New Act) was inserted in the Old Act to provide that MAT provisions would not apply to companies opting for this Concessional Tax Regime.

The Central Board of Direct Taxes (“CBDT”) through Circular No. 29 of 2019¹⁰, clarified that since MAT provisions cease to apply to companies under the Concessional Tax Regime, the mechanism for utilizing MAT credit also ceases to exist. The circular mentioned:

“It is hereby clarified that the tax credit of MAT paid by the domestic company exercising option under section 115BAA of the Act shall not be available consequent to exercising of such option.”

This resulted in a lock-in effect. Companies holding substantial MAT credits were effectively barred from opting for the Concessional Tax Regime, as migration would necessitate a complete write-off of their accumulated MAT credits.

2.2  Changes proposed by the Bill

1. For companies that do not choose opt for the Concessional Tax Regime:
   • The MAT rate is proposed to be reduced from 15% to 14%.
   • With effect from tax year 2026–27, MAT will be treated as a final tax, and no fresh MAT credit will be generated in respect of tax paid under the MAT provisions. Such companies will not be permitted to set off their accumulated MAT credit against normal tax liability. The accumulated MAT credit will lapse unless the company subsequently transitions to the Concessional Tax Regime. However, if and when such companies transition to the Concessional Tax Regime, the MAT credit accumulated under the Old Act until March 31, 2026, should be allowed to be set-off as per the provisions of section 206(3) of the New Act.
2. For companies which opt for the Concessional Tax Regime:The Bill proposes to add a new sub-section to Section 206 which will be applicable to domestic companies opting the Concessional Tax Regime for a tax year beginning on or after April 1, 2026. In such cases, the Bill proposes the following treatment to MAT credit:
   • Accumulated MAT credit, as of March 31, 2026, is allowed to be brought forward and set off in the Concessional Tax Regime.
   • However, unlike the traditional method which allowed full set off of MAT credits, the set-off in the Concessional Tax Regime is capped. The credit can be utilized to the extent of 25% of the total tax payable on the total income for that year.
   • Any unutilized credit can continue to be carried forward, subject to the original 15-year limitation period.
3. Special Dispensation for Foreign CompaniesFor foreign companies, which do not have the option to opt into the Concessional Tax Regime, the Bill proposes to insert a new sub-section (4) to Section 206, providing the following relief:
   • The MAT rate is proposed to be reduced from 15% to 14%.
   • With effect from tax year 2026–27, MAT will be treated as a final tax, and no fresh MAT credit will be generated in respect of tax paid under the MAT provisions.
   • Foreign companies may continue to set off their brought-forward MAT credit.
   • The 25% cap on utilisation of MAT credit will not apply. MAT credit may be set off to the extent of the difference between the tax on total income and the MAT liability.

Section 536(2)(l) of the New Act provides that any MAT credit allowable to be carried forward as per Old Act shall be deemed to be amount eligible for credit under New Act and credit for tax paid under the Old Act shall be allowed under the New Act for the period which it would have been allowed under the New Act. In line with the amendments proposed, the Bill also proposes to make corresponding change to the aforesaid repeal and savings clause.

By prohibiting the set-off of accumulated MAT credit for companies that do not opt for the Concessional Tax Regime, the government effectively presents a binary choice: either transition to the Concessional Tax Regime and utilize accumulated MAT credit, albeit subject to a 25% cap, or remain in the existing regime with no ability to utilize such credit. This is likely to create a strong push for domestic companies to migrate to the Concessional Tax Regime beginning FY 2026–27 or later. It may be prudent for companies to undertake a comparative analysis of potential loss of value of deductions and incentives under the Concessional Tax Regime, as well as accumulated MAT credit availability and time the move to the Concessional Tax Regime accordingly.

That said, given that the MAT provisions do not apply to companies opting for the Concessional Tax Regime, it appears that MAT provisions are intended to gradually become redundant over time. As more companies transition to the Concessional Tax Regime, the relevance of the MAT framework is likely to diminish. This development is positive, as the MAT provisions are complex in their operation, have historically been a significant source of interpretational disputes and litigation, and add to compliance burdens. A gradual phase-out of MAT would therefore contribute to a simpler, more predictable, and less contentious corporate tax regime. Notably, the Bill does not propose changes in relation to carry forward and set-off of alternate minimum tax applicable to non-corporate taxpayers (arguably because there is no concessional tax regime for such taxpayers).

In effect, the proposed amendments materially alter the manner in which MAT credits accumulated up to March 31, 2026 may be utilized. From the perspective of legitimate expectation, such accumulated MAT credits—having arisen under a statutory framework that expressly permitted their carry-forward and set-off—ought ideally to have been fully grandfathered. To that extent, the amendments operate with a quasi-retroactive effect, as they substantially impair the value and usability of MAT credits already earned, notwithstanding that such credits were accumulated in compliance with the law as it stood at the relevant time.

3. Exemptions for eligible non-residents

Under the existing framework of Section 11 read with Schedule IV of the New Act, certain categories of income of eligible non-residents are excluded from total income. The Bill has proposed certain amendments to Schedule IV. The amendments, along with their rationale and implications are analysed below.

3.1  Encouraging export-oriented electronics contract manufacturing in India

The Bill proposes to amend Schedule IV to explicitly exempt income of foreign companies arising from the provision of capital equipment to Indian contract manufacturers. Pursuant to the amendment, any income arising to a foreign company on account of providing capital goods, equipment, or toolingto a contract manufacturer in India will not be included in its total income, subject to prescribed conditions. The exemption applies where:

1. the capital goods, equipment or tooling are provided by a foreign company to a contract manufacturer resident in India;
2. ownership of such capital goods, equipment or tooling continues to vest with the foreign company, though the same are under the control and direction of the contract manufacturer (including arrangements akin to rental or lease);
3. the contract manufacturer is located in a custom bonded area, being a warehouse referred to in section 65 of the Customs Act, 1962; and
4. the contract manufacturer produces electronic goods on behalf of the foreign company for a consideration.

This exemption is made available up to tax year 2030–31. The amendment appears to incentivise electronics manufacturing in India by addressing long-standing concerns that the continued ownership of high-value manufacturing equipment by a foreign principal could result in the creation of a ‘business connection’ or a ‘permanent establishment’ (“PE”) in India. Such characterisation risks subjecting offshore profits of the foreign company to Indian tax. By carving out income arising from providing of capital equipment to export-oriented contract manufacturers operating from customs bonded areas, the exemption seeks to reduce uncertainty, facilitate large-scale electronics manufacturing, and align India’s tax framework with prevailing global contract-manufacturing models.

However, the drafting of the exemption is imprecise, and leaves open a narrow interpretation under which only income in the nature of rental or lease charges for the use of capital equipment is exempt. On such a reading, the exemption may not fully address the more fundamental concern of attribution of global business profits to India on account of the alleged existence of a business connection or PE. If so construed, the provision would fall short of its apparent policy objective.

Further, the time-bound nature of the exemption – limited to tax year 2030–31 – raises additional uncertainty. Upon expiry, the continued provision of capital goods to Indian manufacturers, particularly in non-electronics sectors, could once again be scrutinised as constituting a business connection, potentially reviving the very disputes the amendment seeks to mitigate.

In sum, while the proposal is directionally positive and reflects a clear policy intent to support export-oriented electronics manufacturing, the current drafting leaves room for interpretational disputes and potential denial of the exemption unless clarified through subordinate legislation or administrative guidance.

In addition to above, in order to harness the efficiency of just-in-time logistics for electronic manufacturing, it is also proposed to provide safe harbour to non-residents for component warehousing in a bonded warehouse. The proposal seeks to provide a safe harbour profit margin of 2% on the invoice value, with a resulting tax incidence estimated at about 0.7%. These proposals will be implemented by way of rules – the effective date and impact will have to be evaluated once the rules are notified. Read together with the exemption for the provision of capital equipment, this effectively extends tax certainty across the entire electronics manufacturing supply chain—from equipment provisioning and component storage to export-oriented contract manufacturing.

3.2  Relief for tax on global income of certain residents visiting India under a government-notified scheme 

Under Indian tax law, residents are generally taxed on their worldwide income, whereas non-residents are subject to tax only on income sourced in India. An individual is considered a tax resident of India, inter-alia, if they stay in India for more than 182 days in a tax year. This creates a potential exposure for foreign individuals visiting India for temporary assignments exceeding the 182-day threshold, subjecting their foreign-sourced income to taxation in India for those years.

The Bill has introduced a targeted exemption to mitigate this risk for specific categories of visiting individuals. The conditions for applicability of the exemption are below:

1. The exemption applies to foreign individuals visiting India to render services under a scheme notified by the central government (the “Scheme”).
2. The exemption applies to the foreign-sourced income of such individual earned during five consecutive tax years, commencing from the first year of service under the Scheme.
3. Such foreign individual must be a non-resident of India for five consecutive tax years immediately preceding the year in which they first visit India for rendering services under the Scheme.
4. (iv)  The government may also prescribe additional conditions for applicability of the exemption.

The Scheme has not yet been notified by the government, creating uncertainty regarding the category of individuals intended to be covered by the provision. However, the FAQs¹¹ issued by the government refer to a ‘two-year’ threshold under the DTAAs that India has entered into with countries such as the US, the UK and Australia. This reference appears to allude to the treaty provisions dealing with teachers, professors, and research professionals (for instance, Articles 22, 20 and analogous provisions under the respective treaties), under which income earned in India is exempt from Indian tax where the individual’s stay does not exceed two years.

If the provision is intended to operate in this context, its introduction raises several questions when read alongside India’s tax treaties and the residence tie-breaker rules. Importantly, the exemption is confined to foreign-sourced income and does not extend to income sourced in India. As a result, the taxation of income earned during the period of stay in India may need to be analysed under a combination of domestic law and the applicable treaty, depending on the individual’s residence status in the relevant year.

Where the individual remains a non-resident under domestic law, the position is straightforward: foreign-sourced income is outside the Indian tax net under the Scheme, and India-source income may be exempt under the relevant treaty provisions. In such cases, the new exemption does not materially change the tax outcome.

Complexity arises where the individual becomes a resident of India due to a stay exceeding 182 days. In such cases, the Scheme appears to allow foreign-sourced income to remain exempt under domestic law while India-source income may be exempt under the applicable treaty for up to two years. However, this outcome assumes that exemption under the Scheme and treaty relief can be availed concurrently.

If the applicable treaty and exemption under the Scheme are viewed as mutually exclusive, a visiting professor or research scholar who becomes resident in India may be required to choose between (a) claiming treaty relief for India-sourced income, while becoming taxable in India on foreign-sourced income, or (b) availing the Scheme’s exemption for foreign-sourced income at the cost of foregoing treaty benefits for India-sourced income. In such cases, the practical benefit of the Scheme could be significantly diluted.

Having said the above, in the absence of further clarity on the notified Scheme and any additional conditions that may be prescribed, it is not possible to assess with certainty how the exemption is intended to operate in practice or how it is to be reconciled with India’s treaty framework.

4. Clarity for global cloud service providers

India’s data centre sector is witnessing rapid expansion, driven by rising global consumption, cloud adoption, artificial intelligence (“AI”) workloads, and data localization requirements. As of mid-2025, installed DC capacity in India was estimated at approximately 1,263 megawatts (“MW”), with projections indicating growth beyond 4,500 MW by 2030. This expansion is expected to attract cumulative investments of around USD 20-25 billion.¹²

The scale of this growth is reflected in substantial investment commitments by global technology companies, hyperscalers, infrastructure investors, and Indian conglomerates, spanning hyperscale cloud facilities, AI-focused compute infrastructure, and carrier-neutral colocation platforms.¹³ Collectively, these developments highlight the emergence of data centres as a core digital infrastructure asset class in India, attracting long-term strategic and financial capital.

To further incentivize such investments, the government is working on the Data Centre Policy 2025¹⁴ (“National Data Centre Policy”), building on a draft policy released in 2020¹⁵. The 2020 draft considered a range of facilitative measures, including: (a) granting ‘Infrastructure Status’ for the data centre sector (at par with railways and roadways) to improve access to credit, (b) rationalizing the regulatory clearance process, (c) implementing time-bound single-window clearance mechanisms, and (d) recognizing data centres as an ‘Essential Service’.¹⁶ These policy measures are expected to be in addition to the various policies and incentives notified by state governments in India.¹⁷

These policy measures, coupled with large-scale capital inflows, have the potential to be transformative for the sector, particularly given the central role of data centres in AI-driven and cloud-native workloads.¹⁸ As India’s data centre landscape matures through increasing strategic global and domestic partnerships, it is also likely to give rise to a more complex set of legal and international tax challenges – especially in relation to cross-border business models that deploy India-based cloud and compute capacity to serve a global customer base.

One such challenge relates to the taxation of income earned by foreign cloud service providers (“Global CSPs”) (such as Google, AWS) from cloud services provided to customers outside India using the data centres located in India. This income is hereafter referred to as “Non-India Income of Global CSPs”.

Under domestic law, the India-sourced profits of a foreign company are considered taxable in India. Profit may be considered India-source where the foreign company has, inter alia, a business connection (or, where a tax treaty applies, a PE) in India, and such profit is attributable to that business connection or PE. In the recent past, the Indian Income tax authorities have sought to tax the Non-India Income of Global CSPs on the basis that the income arises from services rendered through data centres located in India, which are considered to constitute a business connection or PE and is therefore attributable thereto.

This position ignores key factual features of the business model, which ordinarily involves the following division of responsibilities.¹⁹:

1. An Indian data centre provider (“Indian DCP”) owns and manages data centre equipment. It includes managing the premises (including their power, cooling, security, and maintenance) and complying with regulations. This is essentially undertaking and managing the infrastructure part of the business.
2. Global CSPs procure services from Indian DSP on a principal-to-principal basis for further selling capabilities of such data centres to their customers globally for hosting their workloads in such data centres. Such Global CSPs provide cloud software to manage workloads, provide support services,  and handle global network routing for their customers. This is essentially undertaking and managing the technology part of the business.

Alleging the existence of a business connection or PE in India in such a scenario does not fully account for the clear functional and commercial separation between Global CSPs and Indian DCPs, the absence of ownership or operational control over the data centre infrastructure by Global CSPs, and the fact that any interaction with the data centres is undertaken remotely as part of a globally integrated cloud architecture. Where the data centres are not, in substance, ‘at the disposal’ of the Global CSPs from an operational perspective, the threshold for constituting a business connection or permanent establishment should not be regarded as having been met—an approach recently reaffirmed by the Indian Supreme Court in Hyatt.²⁰

The Bill seeks to address and put to rest this controversy to boost industry confidence, particularly considering the increasing investment commitments by Global CSPs. It does so by proposing an exemption in the New Act for foreign companies on any income ‘accruing or arising in India or deemed to accrue or arise in India by way of procuring data centre services from a specified data centre’.

‘Data centre services’ are defined to mean “the services provided by a data centre through the use of physical infrastructure including land, buildings, mechanical electrical power equipments, cooling system, security and information technology infrastructure including servers, computers, storage systems, operating systems, security solutions, network and associated software platforms, networking and other equipment, human resource in India”.

‘Data centre’ is defined to mean “a dedicated secure space within a building or centralised location where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing or allowing access to large amounts of data” and a ‘specified data centre’ is defined to mean “a data centre which is (i) set up under an approved scheme and is notified in this behalf by the Central Government in the Ministry of Electronics and Information Technology; and (ii) owned and operated by an Indian company.”

For Global CSPs to avail themselves of such an exemption, the following conditions need to be satisfied:

• The Global CSP needs to procure ‘data centre services’ from a ‘specified data centre’ (i.e., an approved data centre) owned and operated by an Indian DCP.

• The Global CSP needs to be notified by the government to avail the exemption benefit.

• The Global CSP shouldn’t own or operate any of the physical infrastructure or any resources of the ‘specified data centre’;

• All sales by such Global CSP to users located in India (if any) are made through a reseller Indian company of Global CSP; and

• The foreign company maintains and furnishes prescribed information.

The exemption is available up to the tax year ending March 31, 2047.  While the intent behind the proposed exemption appears to be to provide certainty and reassure the industry, the drafting of the provision raises interpretational concerns that may undermine this objective. In particular, the scope of the exempt income is not articulated with sufficient precision.

Read literally, the exemption applies to income accruing or arising ‘by way of procuring data centre services from a specified data centre’. This formulation is problematic, as the procurement of data centre services would ordinarily give rise to an expense for the Global CSP, rather than income. On a plain reading, therefore, the provision appears to exempt a category of income that does not naturally arise in the ordinary course of the business model it seeks to address.

The more plausible legislative intent appears to be to exempt Non-India Income of Global CSPs, i.e., income earned from the provision of cloud or related services to customers, where such services necessarily involve the use of India-based data centre services. However, this distinction is not clearly reflected in the statutory language. As a result, despite a well-intentioned policy objective, the imprecise drafting leaves room for divergent interpretations and may enable aggressive positions at the audit/ assessment level, potentially reintroducing the very uncertainty that the proposed exemption seeks to eliminate.

Similarly, the provision does not clearly address whether the exemption is intended to apply to income earned from sales to Indian customers where such sales are effected through an Indian reseller. It also does little to mitigate the risk that the Indian reseller itself may be regarded as constituting a PE of the Global CSP in India, whether as an agency PE or a fixed place PE (including where the ‘at the disposal’ test is considered to be satisfied through operational control). In such circumstances, the exemption may not be available, as the relevant income could be regarded as accruing or arising in India by virtue of the existence of a PE constituted through the Indian reseller, rather than by way of “procuring data centre services from a specified data centre”.

Relatedly, to provide further clarity to Global CSPs, the Budget also proposes the introduction of a safe harbour regime for data centre services availed from an Indian DCP. Under the proposed safe harbour, the retention of 15% margin by Indian DCP on the cost for provision of ‘data centre services’ to a Global CSP, their ‘associated enterprise’, would not lead to an audit by Income Tax Authorities whether the consideration received by Indian DCP is at arm’s length.

The proposed exemption and safe harbour regime reflect a clear policy intent to position India as a competitive and attractive hub for global cloud and data centre–led investments. By seeking to address long-standing uncertainties around the taxation of Non-India Income of Global CSPs, the Bill signals a welcome recognition of the evolving business models underpinning the digital economy and the need for tax certainty to sustain large-scale, long-term capital inflows.

However, the effectiveness of these measures will ultimately depend on the precision of their drafting and their interpretation in practice. As currently framed, ambiguities around the scope of the exempt income, its interaction with reseller-based operating models, and residual PE risks may dilute the intended certainty and leave room for continued disputes at the audit/ assessment level. Clarificatory guidance or legislative refinement would therefore be critical to ensure that the exemption operates in a manner consistent with its stated objective, and that India’s data centre and cloud ecosystem can scale without unintended tax friction.

5. Reversal of key judicial rulings

The Bill proposes several amendments that seek to override adverse judicial interpretations through retrospective ‘clarificatory’ changes. These amendments signal an effort by the government to curb prolonged litigation and restore administrative certainty, albeit at the cost of retrospectively altering the legal position. Retrospective alterations of the law—particularly where courts have already interpreted the statutory framework in favour of taxpayers—dilute the principle of finality of judicial decisions and undermine legitimate expectations formed under the law as it stood.

5.1  Statutory clarification of time limitation for TPO orders 

5.1.1  Statutory Framework and Historical Context

Section 92CA of the Old Act governs the reference of international transactions and specified domestic transactions to the Transfer Pricing Officer (“TPO”) for determination of the arm’s length price. Where an assessee has entered into such transactions, the AO may refer the computation of the arm’s length price to the TPO, whose determination is binding on the AO for the purposes of completing the assessment.

Sub-section (3A) of Section 92CA, introduced by the Finance Act, 2007 with effect from 1 June 2007, prescribes a time limit for passing the TPO’s order. It provides that the TPO may pass an order “before sixty days prior to the date on which the period of limitation” for completion of the assessment under Sections 153 or 153B expires.

5.1.2  The Controversy

While the legislative intent was ostensibly to ensure timely completion of transfer pricing proceedings so as not to derail the assessment process, the phraseology adopted, particularly the expression “before sixty days prior to” has given rise to significant interpretational controversy.

The core dispute concerned the method of computing the sixty-day period under Section 92CA(3A). The question was whether the phrase “prior to” required backward computation excluding the last date of assessment limitation, or whether the Revenue could include the last date by invoking principles under the General Clauses Act, 1897. 

5.1.3  Judicial Interpretation – Pfizer Healthcare India Pvt. Ltd. ²¹

Taxpayers Contentions

Taxpayers consistently contended that Section 92CA(3A) must be construed strictly, as it prescribes a mandatory limitation period that goes to the root of the TPO’s jurisdiction. Emphasis was placed on the statutory language “before sixty days prior to”, which, according to taxpayers, necessarily requires exclusion of the last date of assessment limitation while computing the sixty-day period backwards.

It was further argued that the use of the word “may” in Section 92CA(3A) does not render the provision directory. Given the consequences of non-compliance and the scheme of the Act, “may” had to be read as “shall”. Taxpayers also resisted the Revenue’s reliance on Section 9 of the General Clauses Act, contending that general principles of time computation cannot override clear and specific statutory language.

A recurring factual illustration advanced by taxpayers related to the “midnight” argument: where the assessment limitation expired on 31 December, the Revenue contended that limitation ran until 00:00 hours of 1 January. Taxpayers countered that 31 December ended at 11:59:59 p.m., and that “midnight” signified the beginning of the next day, not an extension of the previous one. Accepting the Revenue’s position, it was argued, would effectively permit statutory deadlines to bleed into the next calendar day—an approach inconsistent with settled limitation jurisprudence.

Revenues Position

The Revenue argued that the time limit under Section 92CA(3A) was procedural and intended for administrative discipline rather than jurisdictional invalidation. According to the Revenue, the word “may” indicated discretion, and the ultimate controlling limitation remained that under Sections 153 or 153B.

Relying on the General Clauses Act, the Revenue contended that the date on which assessment limitation expired should be included in computing the sixty-day period, particularly where the expression “to” was used. It was further argued that a marginal delay—often of a single day—should not defeat substantive assessment proceedings, especially when no prejudice was caused to the taxpayer.

Judicial View

The controversy was conclusively addressed by the Madras High Court, where a Division Bench upheld the strict taxpayer-friendly interpretation of Section 92CA(3A).

The Court held that the requirement for the TPO to pass an order “before sixty days prior to” the expiry of limitation period is mandatory and not directory. It ruled that the word “may” must be construed as “shall” in the statutory context, given that Section 92CA(3A) imposes a clear temporal embargo on the TPO’s authority.

Rejecting the Revenue’s reliance on the General Clauses Act, the Court held that the expression “prior to” requires exclusion of the last date (31.12.2019) while computing the 60-day period, making 31.10.2019 the final permissible date for passing the TPO order; an order dated 01.11.2019 was therefore barred by limitation. The Court further clarified the “midnight” issue, observing that 00:00 hours denotes the commencement of the next day, and that the last permissible moment of a given date is 11:59:59 p.m.

This interpretation was consistently followed by other courts and tribunals, resulting in annulment of several transfer pricing orders solely on limitation grounds.

5.1.4  Proposed amendment

Acknowledging the considerable litigation on the computation of the sixty-day period under section 92CA(3A) of the Old Act, and the Courts’ interpretation of the provision, the tax department has introduced Section 92CA(3AA) in the Old Act specifying the period of limitation for passing TPO orders. This provision is introduced retrospectively with effect from 1 June 2007 and specifies fixed outer dates depending on when the assessment limitation expires. Specifically,

1. where the limitation period expires on 31 March (non-leap year), the TPO order may be passed up to 30 January of that year;
2. where the limitation period expires on 31 March (leap year), the TPO order may be passed up to 31 January of that year; and
3. where the limitation period expires on 31 December, the TPO order may be passed up to 1 November of that year.

The Bill has further proposed to amend the corresponding Section 166 of the New Act by prescribing similar outer dates as follows:

1. where the limitation period expires on 31 March of any year, the TPO order has to be made on or before 31 January of that year;
2. where the limitation period expires on 31 December of any year, the TPO order has to be made on or before 31 October of that year.

The rationale, as set out in the Memorandum, is that the legislative intent has always been to include the date of limitation under sections 153 and 153B of the Old Act in computing the sixty-day period. With the New Act scheduled to come into force from 1 April 2026, the Bill seeks to remove interpretational ambiguity and ensure uniformity and certainty across both statutes.

5.1.5  Impact and Analysis

This amendment effectively overrules the line of judicial precedents that interpreted section 92CA(3A) strictly in favour of taxpayers and resulted in annulment of transfer pricing orders on limitation grounds.

By statutorily deeming the computation mechanism and giving it retrospective effect, the legislature has sought to restore assessments that were otherwise vulnerable solely due to interpretational disputes on the counting of days.

With respect to past assessments, from a taxpayer perspective, the change significantly narrows the scope to challenge TPO orders on limitation and may strengthen the Revenue’s position in defending past assessments. Going forward, the statutory prescription of a fixed outer date simplifies time computation, as the Revenue can issue its orders one day prior, within the statutory deadline, thereby avoiding disputes arising from marginal timing differences.

5.2  Settling the JAO VS. FAO controversy

5.2.1  Historical Context of the Faceless Assessment Scheme

In the Union Budget Speech for FY 2019–20, the Finance Minister (“FM”) observed that the existing scrutiny assessment framework involved a high degree of personal interaction between taxpayers and the income-tax authorities, which gave rise to undesirable practices. To address these concerns, the government proposed the introduction of a faceless assessment mechanism, with the objective of eliminating direct human interface between taxpayers and the tax administration. The proposal envisaged that scrutiny notices would be issued electronically by a centralised unit, without disclosing the identity, designation, or location of the Assessing Officer (“AO”), with such centralised unit acting as the single point of contact between the taxpayer and the Department. To operationalise this proposal, the government introduced the Faceless Assessment Scheme, 2019 (“2019 Scheme”).

Subsequently, Sections 144B and 151A were inserted into the Old Act.²². Section 144B statutorily codified the faceless assessment procedure and replaced the 2019 Scheme, while Section 151A empowered the government to notify schemes for assessment, reassessment, recomputation, and related proceedings.

Pursuant to Section 151A, the CBDT notified the Faceless Jurisdiction of Income-tax Authorities Scheme, 2022 and the e-Assessment of Income Escaping Assessment Scheme, 2022, specifically bringing Section 148 (reassessment) into the faceless assessment mechanism. Subsequently, Section 144B was completely revamped by Finance Act, 2022 w.e.f. 1 April 2022, in light of several challenges faced by tax department in implementing entirely faceless assessments.

5.2.2  The Controversy

The controversy arose when Jurisdictional Assessing Officers (“JAOs”) continued to issue notices under Section 148 of the Old Act even after the notification of the faceless assessment schemes. Such notices were challenged on a fundamental jurisdictional basis: once a specialised faceless scheme governing reassessment was brought into force, the power to issue notices under Section 148 vested exclusively in the Faceless Assessing Officer (“FAO”), and the JAO ceased to have such authority.

Taxpayers contended that the faceless reassessment framework was mandatory and not merely optional. They argued that upon the establishment of the National Faceless Assessment Centre (“NaFAC”), the JAO became functus officio insofar as initiation of reassessment proceedings was concerned. The Revenue, on the other hand, maintained that the JAO and NaFAC exercised concurrent jurisdiction, asserting that the JAO was required to undertake preliminary information-gathering before the matter could be assigned to NaFAC.

5.2.3  Judicial Divergence  

This controversy reached various High Courts, which have rendered divergent views on the jurisdictional issue. The Bombay, Madras, Telangana and Gauhati High Courts have adopted what may be described as the “exclusive jurisdiction” view, whereas the Delhi and Gujarat High Courts have adopted the “concurrent jurisdiction” view while examining the validity of notices issued under Section 148 of the Old Act.

The Bombay High Court in Hexaware Technologies Ltd. v. ACIT,²³ the Madras High Court in TVS Credit Services Limited v. DCIT,²⁴ the Telangana High Court in Kankanala Ravindra Reddy v. ITO,²⁵ and the Gauhati High Court in Ram Narayan Sah v. Union of India²⁶ ruled in favour of taxpayers. These courts held that the faceless reassessment framework was not merely directory but constituted a mandatory statutory regime. Rejecting the Revenue’s contention of concurrent jurisdiction, they concluded that once the faceless reassessment scheme was notified, the jurisdiction to initiate reassessment vested exclusively in the Faceless Assessing Officer. Consequently, any notice issued by a JAO was held to suffer from a jurisdictional defect and liable to be quashed.

In contrast, the Delhi High Court in T.K.S. Builders (P.) Ltd. v. ITO²⁷ and Sanjay Gandhi Memorial Trust v. CIT (Exemption),²⁸ and the Gujarat High Court in Talati and Talati LLP v. Assistant Commissioner of Income Tax,²⁹ upheld the Revenue’s position by accepting the concurrent jurisdiction argument. The Delhi High Court, placing reliance on the CBDT notification dated 13 August 2020 granting concurrent powers to JAOs and FAOs, observed that reassessment proceedings may be initiated in different factual scenarios. It further held that Section 144B is primarily procedural in nature, prescribing the manner in which faceless assessments are to be conducted, rather than constituting an independent source of power to initiate reassessment. Observing that a complete exclusion of the JAO from the reassessment process would be impractical and inconsistent with the objectives of the faceless framework, the court concluded that both the JAO and FAO possess concurrent jurisdiction to issue notices under Section 148.

The Revenue has challenged the decision of the Bombay High Court in Hexaware Technologies Ltd. by filing a Special Leave Petition (“SLP”) before the Supreme Court, which is currently pending adjudication. As on date, close to 1,000 cases involving the same jurisdictional issue are stated to be pending before the Supreme Court.³⁰

5.2.4  Proposed Change by Finance Bill 2026  

The Bill seeks to address this controversy through the insertion of Section 147A, which clarifies that, for the purposes of Sections 148 and 148A, the term AO shall mean—and shall be deemed to have always meant—an AO other than the NaFAC or any assessment unit referred to in sub-section (3) of Section 144B. The provision further stipulates that Section 147A shall operate retrospectively with effect from April 01, 2021, notwithstanding anything contained in any judgment, order or decree of any court, or in Section 151A, or in any scheme framed thereunder.

A corresponding amendment has also been introduced in the New Act by the insertion of sub-section (3) to Section 279, with effect from April 01, 2026. This amendment clarifies that, for the purposes of Sections 280 and 281, the term AO shall similarly mean an AO other than the NaFAC or any assessment unit referred to in Section 273(3).

Explaining the rationale for the insertion of Section 147A, the Memorandum notes that divergent views adopted by various High Courts have led to significant administrative uncertainty. The Memorandum explains that the Old / New Act contemplates a two-stage reassessment mechanism under Section 147. In the first stage, the JAO conducts the pre-assessment enquiry and issues a notice under Section 148A to determine whether a case is fit for issuance of a notice under Section 148. Upon issuance of a notice under Section 148, along with a reasoned order passed by the JAO, the case is thereafter transferred to NaFAC for completion of the assessment in a faceless manner in accordance with Section 144B.

The Memorandum highlights this clear legislative demarcation between the pre-assessment enquiry stage and the assessment stage, and emphasises that it was never the intent of the legislature to require NaFAC or its assessment units to be involved in the pre-assessment enquiry process, whether for the purposes of Section 148A or the issuance of notice under Section 148.

5.2.5  Analysis and Impact  

While the Revenue has historically maintained that the JAO and the FAO held concurrent jurisdiction in reassessment proceedings, the amendment to insert Section 147A and the accompanying Explanatory Memorandum clearly delineate the roles of the JAO and FAO. Under the reassessment framework, the JAO initiates the reassessment process, and NaFAC (through the FAO) completes the faceless assessment. By giving Section 147A retrospective effect from 1 April 2021, the amendment effectively validates thousands of reassessment notices that had been previously quashed or stayed on jurisdictional grounds. This clarification removes the primary ground of challenge against notices issued under Section 148 of the ITA, significantly bolstering the Revenue’s position and potentially rendering pending Special Leave Petitions before the Supreme Court largely infructuous.

5.3  The DIN controversy

The Document Identification Number (DIN) was introduced by the CBDT³¹ in 2019 to create a digital audit trail for all tax communications, with the objective of enhancing transparency in tax administration and improving service delivery. The relevant CBDT circular clarified that any notice or order issued without a DIN would be treated as non-est and invalid.

Relying on this clarification, various High Courts³² quashed assessments proceeding where notices or orders did not quote a DIN, where the accompanying communication lacked a DIN, or where the DIN was communicated separately. These decisions were founded on the settled principle that circulars issued by the CBDT are binding on the tax authorities.

The Bill also seeks to address this controversy by inserting Section 292BA in the Old Act. The provision clarifies that, for the purposes of Section 292B, no assessment made under the Old Act shall be invalid, or deemed to have been invalid, merely on account of any mistake, defect, or omission relating to the quoting of a computer-generated DIN, so long as the assessment order is otherwise traceable or referenced by such number in any manner.

It is further clarified that Section 292BA shall have retrospective effect from October 01 2019, notwithstanding anything contained in any judgment, order, or decree of any court. A corresponding amendment has been introduced in the New Act, by insertion of Section 522(2), effective from April 01, 2026.

By retrospectively clarifying that any mistake, defect, or omission in quoting a computer-generated DIN does not invalidate an assessment under the Old Act or the New Act so long as the assessment order is otherwise referenced or traceable by such DIN, Parliament has effectively neutralised the operation of CBDT Circular No. 19/2019 dated August 14, 2019. This outcome is consistent with the settled principle that a circular cannot override the statute: circulars are issued only to clarify statutory provisions and cannot alter, amend, or prevail over the law enacted by Parliament.³³

5.4  The DRP dilemma

5.4.1  Historical Context of the DRP Mechanism

Section 144C was introduced by the Finance (No. 2) Act, 2009 as a structural reform aimed at addressing persistent concerns of prolonged litigation and uncertainty faced by non-resident taxpayers and taxpayers subject to transfer pricing adjustments (“Eligible Taxpayers”). Prior to its introduction, Eligible Taxpayers in case of appeals from an order passed by the AO were required to navigate the conventional appellate hierarchy by appeal to the Commissioner of Income-tax (Appeals) (“CIT (A)”) followed by a further appeal to the Income-tax Appellate Tribunal (“ITAT”). This process was widely criticised for being time-consuming and ill-suited for disputes involving Eligible Taxpayers.

Section 144C introduced what was supposed to be an alternate, specialised, and expedited dispute resolution framework. Under this framework, the AO must first issue a draft assessment order if a prejudicial variation is proposed. The taxpayer may either accept the draft or file objections before the Dispute Resolution Panel (“DRP”). The DRP’s directions are binding on the AO, who must then pass a final assessment order. Appeals from such final orders lie directly to the ITAT, bypassing the CIT(A). The architecture of Section 144C was thus explicitly premised on speed, certainty, and early finality.

5.4.2  The Controversy

The controversy between Section 144C and 153 arose because Section 144C prescribes stage-wise timelines for the DRP process but does not expressly state whether these timelines operate within or outside the limitation framework of Section 153.³⁴Thus, the central controversy was whether the timeline for issuing a final assessment order under Section 144C is subject to the time limits for completing assessments under Section 153 of the Old Act.

The issue assumed critical importance where a draft assessment order was issued close to the end of the limitation period under Section 153, leaving insufficient time for completion of the DRP process and passing of the final assessment order. If Section 153 were to be treated as the controlling outer limit, the assessment would fail once limitation expired, irrespective of whether the DRP proceedings were ongoing. Conversely, if Section 144C were treated as a self-contained code, the final assessment could validly be passed even after the expiry of the Section 153 timeline, so long as the draft order was issued in time.

This interpretational divide resulted in significant litigation across forums.

5.4.3  Taxpayers Contentions

Taxpayers consistently argued that Section 153 prescribes a hard statutory outer limit for completion of assessments. A key plank of the taxpayers’ case was that the Explanation to Section 153 exhaustively enumerates the periods that may be excluded while computing the limitation period and the absence of any provision excluding the time consumed in DRP proceedings reflects a conscious legislative choice. If Parliament had intended to carve out an exception for DRP cases, it would have done so explicitly.

Taxpayers also relied on the stated object of Section 144C to provide an expeditious dispute resolution mechanism – and contended that permitting the DRP process to override Section 153 would paradoxically result in longer periods of uncertainty for eligible taxpayers as compared to non-eligible taxpayers.

5.4.4  Revenue Position

The Revenue, on the other hand, maintained that Section 144C constitutes a special and self-contained code applicable to a distinct class of taxpayers. Emphasis was placed on the non obstante clauses embedded in various sub-sections of Section 144C, which were argued to evince legislative intent to override the general assessment framework, including the limitation period under Section 153.

According to the Revenue, the issuance of a draft assessment order is not an “assessment” for the purposes of Section 153. Once the draft order is issued within the limitation period, the subsequent DRP process and the passing of the final assessment order are governed exclusively by the timelines set out in Section 144C.

5.4.5  Judicial View

This issue has continued to be litigated extensively before different benches of the ITAT. Several benches have quashed assessments purely on limitation grounds, while others have upheld the validity of assessments by treating Section 144C as overriding Section 153. This lack of uniformity has perpetuated uncertainty for both taxpayers and the Revenue.

The Madras High Court, in Roca Bathroom Products Pvt. Ltd.³⁵, accepted the taxpayers’ position and held that the entire DRP process (the final order) must necessarily be completed within the limitation period prescribed under Section 153. The Court emphasised that Section 153 continues to govern the making of a final assessment order, and that Section 144C merely prescribes the procedure to be followed prior thereto. In the absence of any statutory exclusion for time spent before the DRP, assessments passed beyond limitation were held to be invalid. However, in Shelf Drilling Ron Tappmeyer Ltd., a division bench of the Supreme Court reached a split verdict. One judge upheld the Revenue’s position, holding that Section 144C is a complete code and that its timelines operate independently of Section 153. The other judge dissented, holding that Section 153 prescribes the ultimate outer limit for completion of assessments, including those involving the DRP mechanism. Owing to the split, the matter has been referred to a larger bench of the Supreme Court and remains pending adjudication.

The Bill seeks to clarify that the timelines prescribed under Section 144C of the Old Act apply notwithstanding anything contained in Section 153, thereby permitting the completion of the DRP process and the passing of the final assessment order even beyond the limitation period otherwise applicable under Section 153, provided the draft assessment order is issued within time. The Memorandum explains that this clarification is intended to remove procedural uncertainty and prevent assessments from being invalidated merely on account of the time consumed during the DRP proceedings. The Bill proposes to apply the amendment retrospectively with effect from 1 April 2009.

The Bill further proposes to amend Section 275 (corresponding to Section 144C of the Old Act) of the New Act to clarify that the limitation period prescribed under Section 286 (corresponding to Section 153 of the Old Act) applies only to the issuance of the draft assessment order under Section 275, and that the time limits for passing the final assessment order are to be governed exclusively by the timelines prescribed in Section 275.

5.4.6  Impact and Analysis

In practice, draft assessment orders in DRP cases are frequently issued close to the end of the Section 153 limitation period, leaving little or no workable time for the taxpayer’s objections, the DRP’s consideration, and the issuance of binding directions within the same outer limit. Against this backdrop, the proposed amendments can be seen as an attempt to align the statutory framework with the operational timelines of the DRP mechanism and to avoid assessments being invalidated solely due to the time consumed in a process that Parliament itself mandated. The retrospective nature of the clarification will also render ongoing litigation on this issue largely infructuous.

Having said that, it is worth recalling that the DRP mechanism was conceived as a measure to accelerate dispute resolution and enhance certainty for eligible taxpayers. It was introduced at a time when the limitation period under Section 153 was 24 months, a framework that did not place the same degree of time pressure on the tax administration. Subsequent amendments that compressed the assessment timeline to 12 months under Section 153 failed to adequately account for the procedural demands of the DRP process. Seen in this light, the present clarification is better understood as an attempt by the government to correct a mistake of its own making – one rooted in an earlier lack of legislative foresight. It is legitimate to ask whether more careful and comprehensive drafting at the time of shortening the limitation period could have avoided the prolonged litigation that followed, and the perceived need for a retrospective legislative intervention.

Stepping back further, a more principled solution may have been for the tax administration to actually adapt its audit strategy to operate within the shortened statutory timelines. This may have required fewer assessments to be taken up, but it is not self-evident that such an outcome would have been undesirable – particularly given the consistently low success rate of the Revenue in contested assessments. This would also have been in keeping with the original intent behind the introduction of the dispute resolution mechanism.

6. Transfer pricing certainty for IT/ IteS

Recognizing India as a global leader in software development services, IT enabled services (“ITeS”), knowledge process outsourcing services and contract R&D services relating to software development, the FM has proposed a set of far-reaching reforms comprising of the following:

1. Creation of a unified category of IT services combining (a) software development services, (b) IT enabled services, (c) knowledge process outsourcing and (d) contract R&D services relating to software development
2. A common safe harbour margin of 15.5% apply to this unified category
3. Enhancement of the safe harbour eligibility threshold for IT services from INR 3000 million to INR 20 billion
4. Approval of safe harbour applications for IT services through an automated, rule-driven process without tax officer intervention
5. The option for an eligible company, once it opts for the safe harbour, to continue applying the same safe harbour for a continuous block of five years

These proposals are significant from the perspective of the IT/ITeS industry. Under the current safe harbour regime, IT services are classified into distinct categories—software development services, ITeS, knowledge process outsourcing and contract R&D services relating to software development—each subject to different revenue thresholds and safe harbour margins. This fragmented approach has historically led to categorisation disputes and uncertainty. The consolidation of these services into a single unified category is a welcome move, and is likely to materially enhance ease of doing business, reduce litigation risk, and provide greater certainty to taxpayers.

In addition to above, the FM has also proposed a targeted fast-tracking of unilateral advance pricing agreements (“APAs”) for the IT services sector. Specifically, the proposal seeks to ensure that unilateral APA applications relating to IT services are processed and concluded within a period of two years from the date of application, with a one-time extension of up to six months available at the taxpayer’s request.

This proposal reaffirms government’s commitment to enhance the effectiveness of APAs and introduces clear and predictable timeline for APA resolution in a sector characterised by high volumes of routine, repeat transactions and relatively standardised transfer pricing profiles. By providing greater certainty on timelines and outcomes, the proposal is expected to enhance taxpayer confidence, encourage wider adoption of the APA route, and reduce prolonged transfer pricing disputes and litigation in the IT/ITeS industry.

7. Integration of assessment and penalty proceedings

7.1 Background

Under the Old Act, the mechanism for imposing penalties for under-reporting or misreporting of income under Section 270A is distinct and separate from the assessment proceedings. The AO is required, in the first instance, to complete assessment or reassessment proceedings (“Quantum Proceedings”) by passing order and making additions or adjustments to income. Penalty proceedings were thereafter initiated separately under section 274 through the issuance of a show-cause notice and, in specified cases, upon obtaining prior approval from higher authorities.

As a matter of settled practice and legal principle, penalty proceedings were generally kept in abeyance until the Quantum Proceedings attained finality before the appellate authorities, on the premise that a penalty cannot be sustained in the absence of a final determination of the quantum of addition. This resulted in parallel yet sequential proceedings, with Quantum Proceedings preceding penalty proceedings, each governed by distinct procedural requirements and timelines. This intent is further reflected in Section 275(1) of the Old Act, which provides an additional period of six months for the passing of penalty orders, computed from the end of the quarter in which the order in the Quantum Proceedings—or, as the case may be, the revision or appellate proceedings order—is passed.

Pertinent to note that Section 536(2)(d) of the New Act on Repeals and Savings empowers the tax authorities to initiate penalty proceedings for tax years prior to 1 April 2026 in accordance with the provisions of the Old Act. Consequently, for such prior periods, both assessment and penalty proceedings continue to be governed by the Old Act, notwithstanding that such proceedings may be initiated after the enactment of the New Act.

7.2  Proposed Amendment

The Bill seeks to address the multiplicity of proceedings by inserting a new sub-section (4) in section 274 of the Old Act. In respect of draft assessment orders passed under section 144C, assessments under section 143, or reassessments under section 147, made on or after 1 April 2027 for years prior to 1 April 2026, any penalty leviable under section 270A shall form an integral part of the assessment or reassessment order itself. The amendment in Sub-section (1) to Section 274 clarifies, however, that even when proceedings are combined, the requirement to issue a separate show-cause notice and provide the taxpayer an opportunity to be heard for the penalty will continue to apply.

7.3  Impact

The amendment effectively subsumes penalty proceedings within the Quantum Proceedings. As a result, the independent limitation period under section 275(1) of the Old Act may become otiose. Having said this, section 275(2) of the Old Act—relating to the modification of penalty orders pursuant to appellate outcomes in the Quantum Proceedings—should continue to apply.

From a practical standpoint, this structural change is likely to compress the time available to contest the levy of penalty, as the penalty would crystallize simultaneously with the assessment order. Under the erstwhile regime, taxpayers could—and often did—seek deferral of penalty proceedings until the Quantum Proceedings attained finality before the appellate hierarchy, typically up to the level of the ITAT. This practical deferral, which was routinely granted, ensured that penalty exposure and the associated interest crystallized only upon the passing of a separate penalty order within the extended limitation period under section 275(1).

With the integration of penalty proceedings into the assessment itself, this deferral mechanism would no longer be available. As a result, penalty exposure would crystallize at an earlier stage, with the attendant consequence that any requirement to pre-deposit the penalty demand for pursuing appellate remedies would arise significantly sooner than under the earlier regime.

Deferral of Interest on Penalty

Consequent to the foregoing amendment, apparent relief has been provided to taxpayers in relation to the computation of interest on penalties.

Section 220(2) of the Old Act has been amended to provide that no interest shall be charged on demands arising from penalties under section 270A until the disposal of the first appellate order—either by the CIT(A) under section 250, or by the ITAT under section 254 in cases originating from DRP directions under section 144C. That is, interest on penalty will be computed only from the date of order of the CIT(A), or the ITAT, as the case may be.

While this amendment ostensibly offers relief, it may nevertheless operate to the taxpayer’s disadvantage when read in conjunction with the merger of penalty and Quantum Proceedings. With penalties now crystallizing at an earlier stage, interest – though deferred – will be computed from the date of the CIT(A) order or ITAT order, as the case may be), rather than from the date on which separate penalty proceedings would traditionally have been initiated following the finality of Quantum Proceedings before all appellate authorities. Consequently, the overall interest exposure on penalty demands may, in effect, be extended.

Further, the relief appears uneven in its application: while in domestic cases not involving the DRP, interest is deferred only until disposal by the CIT(A), in cases arising from DRP directions, the deferral extends until the ITAT stage, resulting in an apparent inconsistency in the nature and extent of relief provided.

8. Reduction in Pre-deposit Amount

Another key procedural relief for taxpayers is the proposal to reduce the pre-deposit requirement for appeals from 20% to 10% of the disputed tax demand.

Under the Old Act, a tax demand arises when the AO issues a notice under Section 156, which is frequently disputed before appellate forums on various grounds. Despite the filing of appeals, these disputed demands often trigger recovery proceedings by the tax authorities, requiring taxpayers to file stay applications to mitigate the immediate financial burden.

In this context, Section 220(6) of the Old Act provides that where a taxpayer has filed an appeal with the first appellate authority disputing the demanded amount, the taxpayer may apply to the tax officer to not be treated as in default with respect to the disputed amount, even if the time for payment has expired. Relevant administrative guidance³⁶ on stay of demand provide for grant of such stay upon payment of 20%³⁷ of the disputed tax amount as pre-deposit. In addition, judicial pronouncements have clarified that a pre-deposit is not a statutory minimum and that a complete stay of the entire demand may be granted to avoid financial hardships to taxpayers in genuine cases.

In practice, however, recovery proceedings frequently continue despite the filing of an appeal and stay application, creating significant financial and operational challenges, particularly for taxpayers with multiple or high-value disputes. In these circumstances, reduction of the pre-deposit requirement to 10% of the disputed tax demand represents a meaningful procedural relief. It not only alleviates the upfront financial burden on taxpayers but also reflects the Government’s intent to align administrative practice with judicial precedents, ensuring that taxpayers are not unduly burdened.

However, the proposed reduction of the pre-deposit to 10% is yet to be operationalised, as it awaits implementation by way of a specific notification / circular and is not presently reflected in the statutory text.

Having said this, there has been no corresponding amendment to Section 254 of the Old Act, which empowers the ITAT to grant a stay of demand subject to the condition that the taxpayer deposits not less than 20% of the amount of tax, interest, fee, penalty, or any other sum payable, or furnishes security of an equivalent amount. Consequently, while the reduced pre-deposit requirement may offer relief at the stage of the first appellate authority, i.e., the CIT(A), taxpayers pursuing appeals before the ITAT may nevertheless continue to be subject to the higher 20% pre-deposit threshold, thereby limiting the uniformity and overall efficacy of the proposed relief.

9. IFSC reforms: strengthening India’s financial services fub

India has established International Financial Services Centres (“IFSCs”) to create globally competitive financial hubs for international financial service. IFSCs operate as designated special economic zones (“SEZ”) with a distinct regulatory and tax framework, and are regulated by the International Financial Services Centres Authority (“IFSCA”), a unified regulator established in 2020. The first and principal IFSC in India is located at GIFT City, Gujarat. IFSCs are intended to facilitate offshore financial services within India, promote cross-border financial activity, and strengthen India’s integration with global financial markets.

Several provisions were introduced under the Old Act to encourage development of IFSC in India. These provisions have been transitioned to the New Act to inter alia include with lower tax rates on dividends from units in IFSCs (at 10%),³⁸ exclusion of certain income from total income (capital gains in the hands of the fund and interest and dividend income in the hands of unit holders of the fund),³⁹ and a favourable minimum alternate tax rate of 9%, as compared to the 14% minimum alternate tax rate applicable to other companies⁴⁰

In continuation with government’s objective of encouraging establishment and growth of businesses set up in the IFSC at GIFT City, the Bill proposes certain favourable changes in relation to IFSC to the New Act.

9.1  Tax holiday 

Under Section 147 of the New Act, units located in IFSC and Offshore Banking Units (“OBUs”) are eligible for a 100% deduction of specified business income. Such deduction is available for a period of 10 consecutive tax years in the case of OBUs, and for 10 consecutive tax years out of a block of 15 years in the case of IFSC units, commencing from the relevant tax year in which the OBU or IFSC unit receives the requisite permission under applicable law or registration under the IFSCA Act, as the case may be.

The specified business income eligible for deduction under section 147 includes income from (i) an OBU located in a SEZ; (ii) the business activities referred to in section 6(1) of the Banking Regulation Act, 1949 with undertakings in a SEZ or entities that develop, develop and operate, or develop, operate and maintain SEZ; (iii) the approved business activities of any Unit of an IFSC set up in a SEZ and (iv) transfer of an asset being, an aircraft or a ship, leased by a unit referred to in clause (iii) if such unit commenced its business operations by 31st March, 2030. 

With a view to enhancing the competitiveness of IFSCs, the Bill proposes to amend Section 147 to extend the tax holiday to 20 consecutive tax years in the case of OBUs, and to 20 consecutive tax years out of a block of 25 years in the case of IFSC units. This is a welcome amendment and reflects the government’s commitment to strengthening the IFSC ecosystem. Extending the effective zero-tax period from 10 years to 20 years is more closely aligned with the long gestation cycles typical of financial services, asset management, and leasing platforms.

Further, the Bill also proposes to introduce a new Section 218, which provides that upon the expiry of the tax holiday period, the specified business income of IFSC units shall be taxable at a concessional rate of 15%, while other income shall be taxable at the rates in force. The introduction of a predictable post-holiday tax rate mitigates the earlier ‘cliff effect’ and should provide tax certainty in long-term. The proposed 15% tax rate on specified business income is also lower than the applicable tax rates for Indian companies, thereby further strengthening the attractiveness and competitiveness of IFSCs.

9.2  Dividend exclusion on inter-group loans or advances  

The definition of ‘dividend’ excludes certain loans and advances made between group entities, where one of the group entities is a ‘finance company’ or a ‘finance unit’ and the parent or principal entity of the group is listed on a stock exchange outside India. Under the IFSCA regulatory framework, finance companies and finance units are permitted to undertake a wide range of cross-border financial activities, including lending in the form of loans and commitments, guarantees, credit enhancements, securitisation, financial leasing, and the sale and purchase of financial portfolios.⁴¹

The Bill proposes to narrow this exclusion by introducing an additional condition that the other group entity involved in the transaction must also be located in a country or territory outside India. Accordingly, where loans or advances are made by an IFSC-based finance company or finance unit to an entity located in India, such loans or advances would not be excluded from the definition of ‘dividend’ and may be subject to dividend taxation.

Further, the Bill also proposes to introduce detailed definitions of ‘group entity’, ‘parent entity’ and ‘principal entity’.

The  ‘group entity’ has been defined to mean an arrangement involving two or more entities related through any of the following relationships: (i) parent–subsidiary (as defined under Ind AS 110 / Accounting Standard 21); (ii) joint venture (as defined under Ind AS 28 / Accounting Standard 27); (iii) associate (as defined under Ind AS 28 / Accounting Standard 23); (iv) common brand name; or (v) equity shareholding of 20% or more.⁴²

Further a ‘parent’ or ‘principal entity’ is defined as an entity that exercises control over other group entities, including through ownership of more than one-half of the voting power or control over the composition of the board of directors.⁴³

Taken together, these amendments narrow the scope of the dividend exclusion for intra-group financing arrangements involving IFSC entities and underscore the need for IFSC-based finance companies and finance units to reassess their inter-group lending structures.

International Tax Team
You can direct your queries or comments to the authors.

¹Prior to its repeal by the Finance Act, 2024, section 115QA imposed an additional income-tax on Indian companies undertaking a buy-back of shares (other than listed shares), at the rate of 20% (plus applicable surcharge and cess), on the “distributed income” arising on such buy-back. “Distributed income” was defined as the consideration paid by the company on buy-back, as reduced by the amount originally received by the company for issue of such shares. The tax was payable by the company, was final in nature, and the corresponding income was exempt in the hands of shareholders under section 10(34A), with no further withholding or tax liability at the shareholder level.

²Section 46A of the Income-tax Act, 1961 provided that where a shareholder received any consideration from a company on the purchase of its own shares (including by way of buy-back), the gain component of such receipt was chargeable to tax as capital gains in the hands of the shareholder. The Finance Act, 2024 departed altered this outcome by amending section 2(22) to insert clause (f), which characterized the consideration received on a buy-back to be dividend.

³Instead of limiting the dividend recharacterization to the extent of accumulated profits and subjecting the residual amount to capital gains treatment, the amended framework recharacterized the entire amount received as dividend and required that the shareholder recognize a capital loss equivalent to the cost of acquisition of the shares bought back.

⁴The term “promoter” is defined differently depending on whether the company undertaking the buyback is listed or unlisted. In the case of a listed company, “promoter” is defined by reference to regulations issued by the Securities and Exchange Board of India, which define a promoter as including any person: (i) who has been named as such in a draft offer document or offer document, or is identified by the listed company in its annual return referred to in section 92 of the Companies Act, 2013; or (ii) has control over the affairs of the listed company, directly or indirectly, whether as a shareholder, director, or otherwise; or (iii) in accordance with whose advice, directions or instructions the board of directors of the listed company is accustomed to act, other than a person acting merely in a professional capacity. In the case of an unlisted company, a promoter also includes a person who holds, directly or indirectly, more than 10% of the shareholding in the company.

⁵In the case of a promoter incorporated as an Indian company, the additional tax is 2% on short-term capital gains and 9.5% on long-term capital gains. In the case of a promoter other than an Indian company, the corresponding rates are 10% on short-term capital gains and 17.5% on long-term capital gains.

⁶As a matter of tax policy, dividend-like taxation of buybacks may be justified where they are functionally equivalent to a distribution of accumulated profits – for instance, where all shareholders participate pro rata and the transaction results, in substance, in no change in ownership or control. In such cases, the economic effect closely mirrors that of a dividend, and similar tax treatment may be warranted. This is possibly what the Finance Act, 2024 set out to achieve, though it went too far by delinking deemed divided taxation from accumulated profits. However, where a buyback results in a substantial reduction in a particular shareholder’s ownership interest the transaction bears the economic characteristics of a sale to a third-party buyer and in such a scenario, it is not immediately apparent why gains realised by such a shareholder should be taxed more onerously than gains realised through a secondary sale to an unrelated purchaser. While corporate profits may indeed be released as part of the buy-back process, if that factor alone were determinative, confining the additional tax to ‘promoters’ appears unjustified.

⁷Section 115JAA, Old Act.

⁸Effective tax rate is 25.16 % (including cess and surcharge)

⁹Effective tax rate is 17.16 % (including cess and surcharge)

¹⁰CBDT Circular No. 20 of 2019 issued on 2^nd Ocrober 2019. Available here.

¹¹FAQ No. 3 under the heading “XXIX. Exemption: Non-residents for rendering services under a notified Scheme in India. [Schedule IV of the Income-tax Act, 2025]”

¹²https://www.colliers.com/en-in/news/press-release-the-digital-backbone-data-centre-growth

¹³https://www.googlecloudpresscorner.com/2025-10-14-Google-Announces-First-AI-Hub-in-India,-Bringing-Companys-Full-AI-Stack-and-Consumer-Services-to-Country; https://www.reuters.com/world/india/indias-reliance-industries-jv-invest-11-billion-data-centre-2025-11-26/  ; https://www.ril.com/sites/default/files/2023-08/24072023-Media-Release-RIL-partners-with-Brookfield-Infrastructure-and-Digital-Realty.pdf; https://www.aboutamazon.in/news/aws/aws-invests-8-billion-in-maharashtra; https://www.tata.com/newsroom/business/tcs-tpg-hypervault-ai-data-centre

¹⁴https://www.digitalindia.gov.in/photo_gallery/industry-consultation-meeting-of-national-data-centre-policy-2025/

¹⁵https://www.nitiforstates.gov.in/public-assets/Policy/policy_files/PNC510C000384.pdf

¹⁶https://community.nasscom.in/communities/public-policy/analysing-data-centre-policies-india

¹⁷https://assets.cushmanwakefield.com/-/media/cw/apac/india/insights/data-centre-policies-in-india-a-statewise-comparison.pdf?rev=6e0e167e39bf41f383b67eef232479f4

¹⁸https://www.orfonline.org/expert-speak/building-sovereign-data-centre-infrastructure-in-india

¹⁹Refer to the pre-budget recommendation for 2026 by NASSCOM available at https://community.nasscom.in/communities/public-policy/ahead-union-budget-2026-strengthening-policy-implementation-technology

²⁰Hyatt International Southwest Asia Ltd. vs. Additional Director of Income Tax -judgement dated July 24, 2025 [Civil Appeal No. 9766 OF 2025/ SLP (C) No. 5710 of 2024]. Refer to NDA Hotline at https://nishithdesai.com/default.aspx?id=15445

²¹Pfizer healthcare India Private Limited [TS-271-HC-2022(MAD)].

²²by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, with effect from 1 April 2022

²³[2024] 162 taxmann.com 225 (Bombay)

²⁴Writ Petition No.22402 of 2024 (Madras HC)

²⁵[2023] 156 taxmann.com 178 (TELANGANA)

²⁶[2024] 163 taxmann.com 478 (Gauhati)

²⁷[2024] 167 taxmann.com 759 (Delhi)

²⁸[2023] 150 taxmann.com 459/294 Taxman 130/455 ITR 164 (Delhi)

²⁹[2024] 167 taxmann.com 371/301 Taxman 321 (Gujarat)

³⁰The Chief Justice of India Justice Suryakanta led Bench is set to hear JAO-FAO cases on Feb. 17, 2026. In an taxsutra flash dated January 29,2026 it is reported that  Hon. CJI Surya Kant orally observes that over 1000 cases have now piled up on this issue and hence this controversy needs to be settled. https://www.taxsutra.com/news/cji-led-bench-hear-jao-fao-controversy-feb-17

³¹CBDT Circular No.19/2019 dated 14.08.2019

³²Illustrative examples include CIT v. Laserwords US Inc. [2025] 175 taxmann.com 920 (Madras HC), Ashok Commercial Enterprises v. Assistant Commissioner of Income Taxation [2023] 154 taxmann.com 144 (Bombay HC)

³³Precot Meridian Ltd. v. Commissioner of Customs, Tuticorin [2020] 118 taxmann.com 228 (Madras)

³⁴Section 153 prescribes the outer time limits for completion of assessment and reassessment proceedings under the Old Act.

³⁵Commissioner of Income-tax vs. Roca Bathroom Products (P.) Ltd. [2022] 140 taxmann.com 304 (Madras)[2022] 445 ITR 537 (Madras)[09-06-2022]

³⁶Instruction No. 1914

³⁷Office Memorandum [F.No.404/72/93-ITCC] dated 31.7.2017

³⁸Section 207 of New Act.

³⁹Schedule VI of the New ITA.

⁴⁰Amendment under Finance Bill, 2026 to Section 206(1)(b) of the New Act.

⁴¹Regulation 5(1) of International Financial Services Centres Authority (Finance Company) Regulations, 2021

⁴²Under Section 2(40)(v)(E)(II) of the New Act, and Regulation (2)(1)(m) of International Financial Services Authority (Payment Services) Regulations, 2024.

⁴³Under Section 2(40)(v)(E)(III) of the New Act.