Indian Government’s Public Policy Think Tank, NITI Aayog, recommends a presumptive tax regime for foreign enterprises

 This Tax Alert summarizes the Indian Government’s Public Policy Think Tank, Niti Aayog’s, paper titled ‘‘Enhancing Certainty, Transparency, and Uniformity in Permanent Establishment and Profit Attribution for Foreign Investors in India” (Paper) ^[1] published on 3 October 2025. Out of the various themes that have been identified by the ‘Consultative Group on Tax Policy’ (CGTP) formed by NITI Aayog to facilitate ease of doing business, promote Foreign Direct Investment (FDI), simplify tax laws and processes, and make the system future-ready, the Paper focusses on recommending measures to refine tax rules related to Permanent Establishment (PE) and the attribution of profits.

The recommendations include the introduction of an optional, industry-specific presumptive taxation scheme for foreign enterprises, coupled with broader legislative clarity, administrative efficiency, robust dispute resolution mechanisms and strategic alignment with international best practices.

Under this system, foreign enterprises would have the option to pay tax based on sector-specific deemed-profit rates applied to their India-sourced gross receipts. By opting in, taxpayers would effectively accept a fixed attribution outcome and, in return, would be shielded from separate PE determination disputes for those activities. Taxpayers who believe their India-attributable profit is lower can opt out and file the return of income based on audited India-related financials. Opting out requires sufficient documentation to support the claim of lower profit.

The Paper proposes deemed-profit ratios for various sectors ranging from 10% for infrastructure, engineering procurement and construction contracts (EPC), engineering, and oilfield services to 30% for digital and e-commerce. These rates are provisional and will be reviewed and refined by an expert panel appointed by India’s apex tax administration, the Central Board of Direct Taxes (CBDT).

The Paper also suggests amending the source rule under Indian Tax Laws (ITL) and gross basis of taxation provisions for non-residents when presumptive tax is applied to avoid overlapping claims under other provisions of the ITL. To prevent misuse, the Paper suggests implementing safeguards such as multi-year lock-ins or requiring approval for frequently switching in and out of the regime.

The Paper also contains supplementary proposals to expand safe harbor and advance pricing agreement (APA) mechanisms to cover PE attribution and promote bilateral and multilateral cooperation on PE attribution matters, triangular tax treaty cases and for globally integrated business models. These proposals would enhance access to dispute resolution tools. The recommendation to extend treaty benefits to fiscally transparent US limited liability corporations (LLCs) is also a progressive step, aligning India’s treaty policy with international norms.

As a next step, the Paper proposes that the Ministry of Finance consider the recommendations, possibly constituting a working group to draft the legal provisions, consulting with stakeholders and include the final proposals in the ITL.