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UPSC » Daily News Analysis ‘NITI Aayog proposes wider presumptive tax to boost FDI’ : 4 October

Daily News Analysis ‘NITI Aayog proposes wider presumptive tax to boost FDI’ : 4 October

Table of Content

Key Recommendation – Presumptive Taxation:

  • Optional presumptive taxation regime with sector-specific benchmarks.
  • Example:
    • Offshore supply → 5% of gross receipts
    • Onshore services → 20% of gross receipts
  • If a company opts for presumptive taxation, PE existence won’t be litigated separately, giving investors tax certainty.

Permanent establishment (PE):

  • Permanent establishment (PE) means having a taxable presence outside your company’s state of residence. 

What is Presumptive Taxation?

  • A simplified tax scheme where income is calculated based on a presumed rate of profit rather than actual income.
  • Designed to reduce compliance burden and simplify tax filing for small businesses and professionals.

Issues with Current System:

  • PE disputes take 6–12 years to resolve.
  • Leads to high litigation, blocked resources, and heavy compliance costs.

Why in news?

  • NITI Aayog released a paper on Permanent Establishment (PE) and Profit Attribution for Foreign Investors in India.