NITI Aayog Proposes Presumptive Taxation Scheme for Foreign Investors

NITI Tax Policy Working Paper Series-I

1. Introduction

The NITI Aayog has released a report emphasising the urgent need to improve tax certainty and predictability for foreign investors in India. The report highlights that while India has emerged as a major investment destination, lingering issues in the tax regime continue to deter foreign participation and increase compliance risks.

2. Challenges in the Current Tax Framework

According to the report, Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) play a crucial role in sustaining India’s economic growth. However, persistent tax uncertainty—particularly surrounding the concepts of Permanent Establishment (PE) and profit attribution—remains a major challenge.

• Ambiguous legislative provisions
• Frequent shifts in judicial interpretation
• Prolonged dispute resolution timelines, often spanning over a decade

These factors have collectively contributed to higher compliance costs and reduced investor confidence.

3. India’s Continuing Investment Appeal

Despite the hurdles, India continues to attract foreign capital due to:

• Its large domestic market and rising consumer base
• Demographic advantages with a young and skilled workforce
• Ongoing structural and policy reforms aimed at improving the ease of doing business

These strengths position India as a key global investment hub, provided tax-related uncertainties are effectively addressed.

4. Proposed Framework for Tax Certainty

To unlock India’s full investment potential, NITI Aayog has proposed a comprehensive framework built around the following reforms:

1. Optional Industry-Specific Presumptive Taxation Scheme – to provide standardised tax outcomes across sectors and reduce interpretational disputes.
2. Clearer Legislative Provisions – to minimise ambiguity in determining taxable presence and profit attribution.
3. Faster Dispute Resolution Mechanisms – including dedicated tax benches and technology-enabled case tracking.
4. Alignment with International Best Practices – to ensure India’s tax regime remains competitive and globally consistent.

5. Expected Impact of the Reforms

NITI Aayog anticipates that the adoption of these measures would:

• Reduce litigation and administrative burden on both taxpayers and authorities.
• Boost investor confidence through stable and transparent taxation rules.
• Encourage long-term, high-quality foreign investment that contributes to real economic growth.

6. Conclusion

In conclusion, the NITI Aayog’s report underscores the need for a predictable and fair tax environment that promotes investment certainty and sustainable economic development. Implementing these recommendations could mark a significant step toward positioning India as a trusted and stable global investment destination.

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