Niti Aayog pitches for presumptive taxation scheme for foreign investors

The government think tank Niti Aayog on Friday (October 3, 2025) suggested the introduction of a presumptive taxation scheme for foreign companies to provide certainty and simplicity.

The Aayog, in a working paper, said the optional presumptive taxation scheme would help in resolving disputes concerning PE (permanent establishment), simplifying compliance and protecting revenue.

“The proposed presumptive taxation scheme is a proactive and pragmatic solution to a long-standing problem.

“It balances India’s sovereign right to tax with the need to provide certainty and simplicity to foreign investors,” the working paper said.

The paper noted that despite India’s inherent appeal and remarkable FDI growth, structural impediments such as ambiguous PE regulations introduce tax uncertainty and dampen investments.

“Codify PE and attribution principles into domestic law, aligned with global norms, while avoiding retrospective amendments.

“…by adopting a presumptive taxation scheme, India can transform its tax regime from a ‘minefield’ into a ‘well-lit path’, significantly improving its standing in global business indices,” it said.

The presumptive taxation scheme works to provide relief to taxpayers from the tedious work of maintaining regular books of account under certain circumstances.

A company opting for this scheme can declare income at a prescribed rate; in lieu of that, it is relieved from maintaining books of accounts for audit by tax authorities.

The paper emphasised that this bold reform would align tax policy with the larger economic vision.

It suggested that the presumptive taxation scheme should have different deemed profit rates for various sectors.

“A foreign company can opt for certainty. However, it can also opt out and file a regular return if its actual profits are lower than the presumptive rate,” the working paper suggested.

It also recommended that tax authorities should not separately litigate the existence of a PE for that activity, providing a critical safe harbour.

The paper said the government should train tax officers to apply rules consistently, particularly on complex digital and cross-border cases, reducing subjectivity.