INDIA Law and Practice Contributed by: Raj Ramachandran, Kartik Jain, Mannat Nirola and Anmol Mahajan, JSA Advocates & Solicitors
mentation to establish the adequacy of arm’s length pricing. Further, with effect from 1 April 2025, taxpayers have been given the option to opt for a block transfer pric - ing assessment regime, subject to satisfaction of the prescribed conditions. While transfer pricing is primarily an income tax con - cept, a comparable mechanism exists under cus - toms law through the Special Valuation Branch (SVB). Where goods are imported from related parties, cus - toms authorities may examine whether such relation - ship has influenced the declared transaction value of the imported goods. The SVB reviews the nature of the relationship and the circumstances of sale, and determines whether the declared value is acceptable for customs purposes or requires adjustment. 5.7 Anti-Evasion Rules Direct Tax India has a comprehensive anti-evasion framework comprising both general and specific anti-avoidance provisions. • The General Anti-Avoidance Rule (GAAR) targets impermissible avoidance arrangements where the main purpose is to obtain a tax benefit. Such arrangements are carried out in a manner not normally employed for bona fide purposes, lack commercial substance (in whole or part) and create rights/obligations not ordinarily arising at arm’s length, resulting in misuse/abuse of tax provisions. • Specific Anti-Avoidance Rules (SAAR) address targeted tax avoidance strategies and often take precedence or complement GAAR, such as: (a) thin capitalisation rules, which limit interest deductions on borrowings from related non- residents; (b) transfer pricing rules, which require interna - tional transactions and specified domestic transactions between AEs to be conducted at arm’s length; (c) Place of Effective Management provisions, which determine residency of foreign compa - nies if key management and commercial deci - sions are made in India; and (d) Significant Economic Presence provisions,
which seek to tax certain digital and business activities undertaken by non-residents. • Additional anti-evasion measures include the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which prescribes extensive reporting and disclosure requirements and stringent penalties and prosecution for wilful tax evasion, concealment and misreporting. Indirect Tax Each indirect tax law in India prescribes its own com - pliance obligations and associated penalty framework. There is no unified anti-evasion regime that operates uniformly across the various indirect tax statutes. 5.8 Tariffs India’s tariff regime is principally governed by the Customs Act, 1962 and the Customs Tariff Act, 1975. It follows a multi-layered duty structure comprising BCD, IGST, SWS, AIDC and, where applicable, anti- dumping and safeguard duties. The principal levies are as follows: • BCD : Generally levied at 10% of the value of the goods. • IGST : Levied at the applicable rate of GST on sup - plies made in India. • SWS : Generally levied at 10% of the aggregate of levies under the Customs Act. • AIDC : Levied on specified imported products to finance agricultural infrastructure and other devel - opment expenditure. • Health cess : Levied on import of specified medical devices and equipment (generally at 5%) with a view to promoting domestic manufacturing. • Anti - dumping and safeguard duties : Levied on specified goods and imports from specified coun - tries to address dumping, import surges or injury to domestic industry. These duties are imposed in addition to other applicable duties, taxes and cesses. Of the above levies, only IGST is generally creditable under the GST framework and may be claimed as input tax credit by eligible importers. The remaining levies ordinarily constitute a cost to the importer.
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