India

Abolishment of equalisation levy

The equalisation levy on specified services like online advertisement any provision for digital advertising space has been abolished w.e.f. from 1 April 2025 by the Finance Act, 2025. It is noteworthy that equalisation levy on non-resident e-commerce operators was previously abolished effective 1 August 2024. Accordingly, the entire regime of equalisation levy, now stand abolished.

Incentivisation of International Financial Services Centre (IFSC)

In order to

promote the development of world-class financial infrastructure in India, several tax concessions have been provided to units located in IFSC, under the Income-tax Act (the Act), over the past few years. In continuation, the following key additional incentives have been provided under the Finance Act, 2025:

1. The due date for certain activities (such as commencement of operations or relocation of funds to IFSC) for obtaining benefits under various provisions has been extended to 31 March 2030;
2. Amount received under alLife insurance policy issued by an IFSC insurance intermediaries shall be exempt from tax;
3. Income earned by non-residents or units of IFSC, which are engaged in ship leasing, from transfer of equity shares of a company which is also a unit in IFSC and is also engaged in ship leasing, shall be exempt from tax;
4. Dividend earned by a unit of IFSC engaged in ship leasing from another company which is also a unit in IFSC and engaged in ship leasing, shall be exempt from tax;
5. Loans extended by a finance company/unit of IFSC undertaking treasury activities to its to its group entity listed outside India, shall not be deemed as dividend for tax purposes;
6. Following incomes of non-residents from Offshore Derivatives Instruments (ODIs), over the counter derivatives (OTCs) or non-deliverable forwards (NDFs) entered into with an IFSC Banking Unit or Foreign Portfolio Investor (FPI) in the IFSC shall be exempt from tax:

• • Income from transfer of ODI, OTC or NDF
  • Distribution of income on ODI

Extension of sunset date for tax exemptions on making investment in India by Sovereign Wealth Funds, Pension Funds

In order to provide the stability and time frame necessary for global investors to make substantial contribution to India’s infrastructure development, the Indian Government vide Finance Act, 2025 has extended the sunset date for Sovereign Wealth Funds and Pension Funds to make qualifying investments in the infrastructure sector has been extended from 31 March 2025 to 31 March 2030.

Scheme of presumptive taxation introduced for non-resident providing services for electronics manufacturing facility

A new provision has been introduced by the Finance Act, 2025 for taxing the income of a non-residents engaged in providing services or technology to electronics manufacturing facilities operated by resident companies in India, on a presumptive basis. Under this section, 25% of the total consideration (whether received or receivable) earned by the non-resident from such business activities is treated as profits and gains, subject to taxation. The effective tax rate for this income works out to 8.75% (plus applicable cess and surcharge).

No fresh notifications in context of MFN clauses of tax treaties

No new notifications have been issued by the Government of India permitting the benefit of Most Favoured Nation (MFN) clause in any tax treaty.  The last notification issued by the Indian Government pertained to the India-Spain tax treaty whereby it imported a lower tax rate of 10% for royalty and FTS from the India-Germany tax treaty.

Relief to eligible start-ups

The domestic tax laws provide certain tax deductions to eligible start-ups, provided such eligible start-up is incorporated on or before 31 March 2025. Finance Act, 2025 has extended the period for incorporation of eligible start-ups claiming tax holiday by five years from 1 April 2025 to 1 April 2030.

Extending the time-limit to file the updated return

In order to encourage voluntary compliance, Finance Act, 2025 has extended the time limit to file an updated return of income from 24 months to 48 months from the end of the tax year and also provide rate of additional income tax payable depending on the time within which the updated return of income is filed.

Rationalisation of provisions related to carry forward of losses in case of amalgamation

In the case amalgamation/merger, the accumulated loss of the amalgamating entity or predecessor entity is deemed to be the loss of the amalgamated entity or the successor entity and such loss was permitted to be carried forward for an additional period of eight years. However, the provisions have now been amended by the Finance Act, 2025 to provide that such loss will be allowed to be carried forward and set-off only till the period till which the amalgamating company could have carried forward and set off such loss.