Taxation of ESOP.

 The document explores the tax implications of compensations paid for the diminution in the value of Employee Stock Ownership Plan (ESOP) options following corporate events like disinvestment. It delves into legal precedents, judicial rulings, and tax treatments under Indian Income Tax laws.

Will Renting of Residential Flat Be Charged Only Under House Property Post the Amendment in Finance Act 2024?

 The Finance Act 2024 has introduced a significant amendment that impacts the taxation of rental income from residential properties. This amendment has effectively reclassified the income from letting out residential houses, ensuring that it is taxed under 'Income from House Property' rather than 'Profits and Gains of Business & Profession.'

Is RPM is the appropriate method for a distributor incurring AMP expenses?

 The key issue is whether the Resale Price Method (RPM) is appropriate for determining the Arm’s Length Price (ALP) for a distributor incurring Advertisement, Marketing, and Promotion (AMP) expenses. The assessee, a joint venture between a UK luxury brand and an Indian entity, imports and resells luxury goods without adding value. The Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) rejected RPM due to high AMP expenses.

However, authoritative guidance and judicial precedents support RPM in such cases. The UN Transfer Pricing Manual (2021) prioritizes functional comparability over product comparability for RPM. OECD guidelines state that RPM is suitable when a distributor resells goods without further processing. The Bombay High Court (L’Oréal India, 2015) and the Delhi High Court (Burberry India, 2019) upheld RPM despite AMP expenses.

Given these precedents, the TPO’s rejection of RPM appears incorrect, as AMP expenses alone do not disqualify its application when the distributor operates on a limited-risk resale basis.

New Customs Scheme for Manufacturing Sector

 The Regulations enable an Authorized Importer to clear the imported goods directly from port to its manufacturing unit (‘Authorised Premises’) and file Bill of Entry for home consumption thereof from its Authorised Premises.

 

Understanding the US SEC's Role in Digital Asset Regulation

 The article outlines the U.S. Securities and Exchange Commission’s (SEC) evolving role in regulating digital assets such as cryptocurrencies and tokens. It highlights key enforcement actions, legislative efforts, regulatory clarifications, and their impacts on various stakeholders.

Addressing the Non-Transferability of MOOWR License in Cases of Merger/Demerger/Amalgamation

 The MOOWR (Manufacturing and Other Operations in Warehouse) scheme has been a valuable tool for businesses operating within the customs framework. However, a significant challenge has emerged concerning the non-transferability of the MOOWR license in cases of corporate restructuring such as mergers, demergers, or amalgamations. This issue has become a major concern for license holders, creating legal and financial uncertainties.

Summary of Budget 2025 - Transfer Pricing (TP) Amendments

 The Union Budget 2025 introduces significant amendments to transfer pricing (TP) regulations under the Income Tax Act. These changes focus on multi-year application of arm’s length price (ALP), streamlining compliance, and reducing litigation. The key amendments affect Section 92CA (Transfer Pricing Officer’s Reference) and Section 155 (Recomputation of Income).

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1. Key Transfer Pricing Amendments

1.1. Amendments to Section 92CA – Reference to Transfer Pricing Officer (TPO)

• Existing Provision:

  • The Assessing Officer (AO) can refer international or specified domestic transactions to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP).
  • The TPO then assesses the transaction and passes an order.

• Amended Provision:

  • New Subsections (3B) and (4A) allow the ALP determined in one year to be applied to similar transactions for the next two years if the taxpayer opts for it.
  • Conditions for ALP Application for Two Additional Years:
    • The taxpayer must formally opt-in for this provision.
    • The option must be exercised in a prescribed form and manner.
    • The TPO must approve the option within one month of submission.
  • Implications:
    • Reduces Compliance Burden: Eliminates the need for annual ALP determinations.
    • Ensures Pricing Consistency: Provides tax certainty and reduces disputes.
    • Facilitates Tax Administration: Streamlines TP assessments for businesses and tax authorities.

• Effective Date:

  • These amendments will be effective from April 1, 2026, applying to Assessment Year 2026-27 and beyond.

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1.2. Amendments to Section 155 – Recomputation of Income

• New Subsection (21) is inserted in Section 155 to mandate the recomputation of income for two consecutive years if the ALP for a transaction is applied under Section 92CA (3B).
• The Assessing Officer (AO) must adjust the income in line with the ALP determined by the TPO.
• Time Limit: Recomputation must be completed within three months from the completion of the original assessment.

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2. Outstanding Questions & Clarifications Needed

1. Definition of "Similar Transactions":
   • The amendments rely on transactions being similar for ALP applicability, but clear criteria for similarity need to be defined.
2. Process & Forms for Claiming Multi-Year ALP Option:
   • A notification or circular is expected to outline the procedure for opting in.
3. Clarification on Filing Timelines:
   • The timeframe within which taxpayers must apply for multi-year ALP treatment needs specification.

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3. Conclusion

• The Budget 2025 TP amendments provide greater certainty, reduce compliance costs, and streamline TP administration.
• However, businesses must await clarifications on procedural aspects before fully utilizing these changes.

Summary of the Input Service Distributor (ISD) Mandate

The Input Service Distributor (ISD) mandate, introduced in the Union Budget 2024, will take effect from April 1, 2025, as per amendments to Section 20 of the Finance Act, 2024. The mandate primarily addresses the distribution of input tax credit (ITC) through the ISD mechanism, particularly for reverse charge mechanism (RCM) payments on inter-state supplies.

 

Union Budget 2025 - Analysis of Tax Impact

 Direct Tax

·       No change in the rate of corporate tax including surcharge & cess.