Union Budget 2025-26 : Transfer Pricing Perspective
The finance minister presented the Indian Union budget 2025-26 on 01 February 2025. The transfer pricing updates are provided in the VSTN Alert, which is summarised below:
- Introduction of option to taxpayer for multi-year arm’s length determination. The finance minister in the budget speech introduced this option to taxpayers wherein the arm’s length price determined for one year is applied for consecutive two years with regard to similar international transactions & facts and circumstances. While the Finance Bill, 2025 proposes to amend the Income tax Act to enable taxpayer exercise of such option, the detailed rules on implementation of the multi-year approach are expected to be issued vide the Income-tax Rules by the CBDT.While this approach is introduced in light of the global best practice, the multi-year approach in its current proposed form would differ in substance from the global approach of ‘block period’ – which is similar to concept of ‘term testing’ (testing the results of taxpayers for 3 years combined as one tax period).Currently, the regulations surrounding maintenance of contemporaneous documentation has not been modified and hence even where the taxpayers wishes to elect for this option, annual compliances such as filing of accountant’s report and transfer pricing documentation along with benchmarking for the respective year would have to be complied with, also ensuring penalty protection.
- Safe Harbour Rules: The budget speech stated that safeharbour rules would witness expansion in the scope of rules and revision of existing arm’s length price for existing covered transactions. Detailed rules is expected to be issued by the CBDT in due course.
- Faceless scheme: The Budget proposes to remove the deadline for notifying faceless schemes for Transfer pricing assessment / audit, thereby allowing the Central Government to issue directions beyond March 31, 2025, as needed.
The budget speech stated that the new income-tax bill would be introduced in the week following the budget session. The income-tax bill is expected to simplify the taxation rules, with about half the volume of the existing Income-tax Act.