Direct Tax

Removal of difficulties while implementing direct tax Vivad Se Vishwas Scheme, 2024

Order S.O. 348(E) [NO. 8/2025/ F. No. 370153/01/2025-TPL], Dated 20 January 2025

  1. The Direct Tax Vivad Se Vishwas Scheme, 2024 was introduced to resolve pending tax disputes and was effective from October 1, 2024. However, while implementing concerns were raised on eligibility in cases where:
    1. An order was passed by tax authorities on or before 22 July 2024.
    2. The time to file an appeal was still available on that date.
    3. The appeal was filed after 22 July 2024, within the allowed time, but without requesting an extension for the delay.
  2. To address these issues, the Central Government issued an order stating:
    1. The appeal will be treated as pending on 22 July 2024, for the scheme.
    2. The person filing the appeal will be considered an appellant under the scheme.
    3. The disputed tax will be calculated based on the appeal.
    4. The provisions of the scheme and related rules will apply to such cases.

Unit of international financial services centre shall not be considered as buyer for purposes of SECTION 206C(1H) and seller for the purpose of SECTION 194Q

Notification S.O. 99(E) [NO. 6/2025/F. NO. 275/108/2024-IT(B)] and S.O. 21(E) [NO. 3/2025/F. NO. 275/109/2024-IT(B)] respectively, dated 6 January 2025 and 2 February 2025 respectively

The board has notified that a unit of the International Financial Services Centre (IFSC) is not considered a buyer under Section 206C(1H) or a seller under Section 194Q. Therefore, sellers do not need to collect Tax Collected at Source (TCS) on sales to these buyers, and buyers do not need to deduct Tax Deducted at Source (TDS). This is provided the IFSC unit submits a statement-cum-declaration in Form No. 1A, stating it has opted for a deduction under Section 80LA. Additionally, sellers and buyers must report these transactions, indicating that TCS was not collected or TDS was not deducted when filing Form 27EQ or 26Q for the relevant period.

Conditions prescribed for non-residents engaged in the business of operation of cruise ships under presumptive taxation regime

Notification G.S.R. 67(E) [NO. 9/2025/F.NO.370142/18/2024-TPL], dated 21 January 2025

  1. Section 44BBC of the Income-tax Act, 1961 (ITA) provided a presumptive taxation regime for non-residents engaged in the business of operation of cruise ships. Further, exemption has been provided for any income of a foreign company from lease rentals of cruise ships, received from a related company which operates such ship or ships in India.
  2. Conditions for Applicability: The new rule i.e. rule 6GB has been inserted which states:
    1. Operate a passenger ship with a capacity of over 200 passengers or a length of 75 meters or more, for leisure and recreational purposes, with appropriate dining and cabin facilities;
    2. Operate such ship on scheduled voyages or shore excursions touching at least two sea ports of India or the same sea ports of India twice;
    3. Operate such ships primarily for carrying passengers, not cargo; and
    4. Follow procedures and guidelines issued by the Ministry of Tourism or Ministry of Shipping.

Guidance for application of the principal purpose test under India's double taxation avoidance agreement

Circular NO. 1/2025 [F. NO. 500/05/2020/FT&TR-II], dated 21 January 2025

  1. Principal Purpose Test (PPT): This rule in tax treaties prevents tax avoidance by stopping artificial arrangements for tax benefits. It's included in most of India's Double Taxation Avoidance Agreements (DTAAs) through the Multilateral Convention (MLI) and some through bilateral processes.
  2. Guidance on PPT Application:
    1. Application Period:
      • Bilateral DTAAs: This applies from the date the DTAA or Amending Protocol incorporating the PPT comes into force.
      • MLI DTAAs: Applies from the date the MLI provisions take effect:
        • For taxes withheld at source: From the first day of the previous year falling after the date on which MLI enters into force.
        • For other taxes: From the previous year falling after the expiration of six months from the date on which MLI enters into force.
    2. Treaty-Specific Bilateral Commitments: Grandfathering provisions in the India-Cyprus, India-Mauritius, and India-Singapore DTAAs are not affected by the PPT.
    3. Additional Guidance: The PPT application is case-specific. Tax authorities may refer to various sources including the UN Model Tax Convention Commentary (2021), subject to India's reservations.

Insertion of new rules 2DAA and 21ACA

Notification G.S.R. 76(E) [NO. 10/2025/ F. NO.370142/26/2024-TPL]dated 27 January 2025

  1. The Income-tax (Second Amendment) Rules, 2025 make several updates to the Income-tax Rules, 1962, focusing on venture capital funds, finance companies in International Financial Services Centres (IFSCs), and certain investment schemes.
  2. A new rule - 2DAA has been added, which clarifies that a Venture Capital Fund, as defined by the International Financial Services Centres Authority (Fund Management) Regulations, 2022, will now be recognized as a Category I Alternative Investment Fund under these regulations.
  3. Rule 21ACA outlines what activities a finance company based in an IFSC can engage in. These activities include things like lending, credit enhancement and treasury functions (such as managing currency or commodity risks). Additionally, it’s now required that any interest paid on loans taken from non-residents must be in foreign currency.
  4. Sub rule 4 is inserted to Rule 21AIA, wherein criteria for a retail scheme to qualify under section 10(4D) is provided, as under:

    Having at least 20 investors, with no single investor owning more than 25%.

    Limiting investments in associated companies, unlisted securities, and individual companies to certain percentages.

  5. An Exchange Traded Fund (ETF) must be listed on a recognized stock exchange and adhere to the regulations under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

Application for requesting Order Giving effect (OGE) is enabled on the e-filing Portal

Now, after receiving any appellate order, an Assessee may log on to the e-filing portal and file an OGE request under the 'Services' tab.

Indirect Tax

Customs

CBIC rolls out Automated Out of Charge for AEO T2 and T3 clients

Circular No. 01/2025-Customs dated 1 January 2025

The Central Board of Indirect Taxes & Customs (CBIC) has rolled out a trade facilitation measure, viz., Automated Out of Charge (Auto-OOC) for Authorized Economic Operators (AEO) T2 & T3 certificate-holders, where Container Control Regime (CCR) verification is not required.

In the first phase, Auto-OOC will apply to Bills of Entry (BEs) that meet specific criteria, including those not selected for examination or scanning or for any Partner Government Agency (PGA) related NoC. Additionally, the assessment must be complete, and authentication of the BE via OTP must be successfully completed for duty deferment.

The said facility will be available on a risk basis for the eligible BEs. In case of any intelligence, the Auto-OOC can be overridden by the Customs officers concerned.

Foreign Trade Policy

DGFT introduces the ‘Diamond Imprest Authorization’ Scheme

The Directorate General of Foreign Trade (DGFT) has introduced the ‘Diamond Imprest Authorization’ (DIA) scheme under the Foreign Trade Policy 2023, effective from 1 April 2025. This scheme would allow eligible exporters to import Natural Cut and Polished Diamonds for re-export, with a 10% value addition requirement in foreign exchange.

Only exporters with a Two Star Export House status, a minimum annual export of USD 15 million in diamonds each year for the last three financial years, and full compliance with tax filings would be eligible for the authorization. The imports have been capped at 5% of the exporter’s average annual export performance over the previous three financial years subject to a maximum value of USD 15 million. The authorization shall be subject to the ‘actual user’ condition and a pre-import condition.

DGFT rolls out online module for Annual RoDTEP Return

Trade Notice No. 27/2024-25 dated 29 January 2025 r/w Public Notice No. 27/2024-25 dated 23 October 2024

DGFT has launched an online module for filing of Annual Returns by exporters in relation to Remission of Duties and Taxes on Exported Products (RoDTEP) claims.

Vide Public Notice No. 27/2024-25, the said Annual Return was notified with the aim to assess the nature of inputs used in export production and the amount of actual taxes and duties incurred. The Return for RoDTEP claims filed in a particular financial year shall be filed on the DGFT portal by 31 March of the next financial year.

This requirement for filing the Annual Return shall begin with the exporters (IECs) whose total RoDTEP claim exceeds INR 10 million in a financial year across all 8-digit HS Codes. Non-reporting shall lead to denial of benefits under the RoDTEP scheme and no further scroll out of RoDTEP claims for shipping bills will be permitted at the Customs port of export after the grace period of 3 months, i.e. after 30 June.

DGFT provides relief in Average EO under the EPCG scheme for 469 product groups

Policy Circular No. 11/2024-25 dated 21 January 2025

DGFT has granted relief under the Export Promotion Capital Goods (EPCG) scheme to exporters dealing in sectors/product groups that witnessed a decline of more than 5% in exports as compared to the previous year. Accordingly, all Regional Authorities have been requested to refix the Annual Average Export Obligation (EO) for EPCG Authorizations for the year 2023-24, in relation to 469 sector/product groups.

SOP for voluntary disclosure of non-compliance/violations related to the export of SCOMET items and Regulations

Public Notice No. 40/2024-2025 dated 15 January 2025

DGFT has notified the Standard Operating Procedure (SOP)/Guidelines for voluntary disclosure of non-compliance/violations related to the export of SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) items and SCOMET Regulations, with immediate effect.

Voluntary disclosures cover unauthorized exports, misuse of authorizations, and other violations, except for SCOMET Category 0 and specific Chemical Weapons Convention (CWC) schedules. Exporters must submit their disclosures to DGFT using the prescribed format along with supporting documents.

Transfer Pricing

Unpacking 2025 Budget | Strengthening the Transfer Pricing Assessment Framework with Block Assessments

The Finance Minister, in her recent budget speech of 1 February 20257, briefly underlined Taxation Reforms as one of the key reforms to realize the vision of ‘Viksit Bharat’ (Advanced India). She touched upon the topic of ease of doing business and introduced measures to streamline the process of transfer pricing assessment. The Finance Bill 2025 has proposed a multi-year framework to determine ALP aimed at reducing excessive compliance burdens and eliminating redundant assessments where there is uniformity in transactions that remain consistent over time.

Click Here to Read the detailed article in this regard.

Key Takeaways

The introduction of block assessments, covering a three-year period, is a key reform in the Indian transfer pricing regime, providing taxpayers with an elective alternative to annual assessments. This aims to reduce the administrative burden that businesses face during litigation when engaging in similar intercompany transactions year over year and improve predictability for taxpayers. However, the success of this framework will largely depend on the detailed provisions, administrative implementation, and effective clarifications. Businesses will need to carefully evaluate the potential benefits and challenges of opting into this new system and prepare for its implementation once the detailed rules are finalized. In the current aggressive TP audit environment, this could be challenging, as taxpayers may hesitate to exercise this option due to uncertainty regarding the outcome of the first year’s assessment.

7. https://www.indiabudget.gov.in/doc/budget_speech.pdf

Tax Street January 2025