Presumptive Taxation for Non-Residents in India: Clause 61 of the Income Tax Bill, 2025 merging Sections 44B, 44BB, 44BBA, 44BBB, 44BBC and 44BBD of Income Tax Act, 1961

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Clause 61 Special provision for computation of income on presumptive basis in respect of certain business activities of certain non-residents.

Income Tax Bill, 2025

Introduction

Clause 61 of the Income Tax Bill, 2025, introduces a special provision for computing income on a presumptive basis for certain business activities conducted by non-residents. This clause is significant as it aims to simplify the taxation process for specific non-resident business operations, thereby encouraging foreign participation in these sectors. The clause overrides sections 26 to 54 of the Income Tax Act, 1961, to the extent they are contrary to its provisions. This analysis will delve into the objective, purpose, and implications of Clause 61, comparing it with existing sections 44B, 44BB, 44BBA, 44BBB, 44BBC, and the proposed section 44BBD of the Income Tax Act, 1961.

Objective and Purpose

The legislative intent behind Clause 61 is to provide a streamlined and predictable tax regime for non-residents engaged in specific business activities in India. By offering a presumptive taxation scheme, the provision seeks to reduce compliance burdens and administrative complexities associated with maintaining detailed accounts and undergoing audits. This approach aligns with global best practices, where presumptive taxation is used to facilitate ease of doing business, particularly for non-resident entities.

Detailed Analysis

Key Clauses and Interpretations

1. **Scope and Applicability**:

Clause 61 applies to non-residents engaged in specified business activities such as the operation of ships, cruise ships, aircraft, civil construction related to turnkey power projects, and services related to mineral oil extraction. Each activity has a predetermined percentage of income deemed as profits and gains.

2. **Presumptive Income Calculation**:

The clause specifies different presumptive income rates for various business activities. For instance, the operation of ships is taxed at 7.5% of specified receipts, while cruise ships are taxed at 20%. This differentiation reflects the varying profit margins and operational complexities associated with each sector.

3. **Option for Lower Profits Declaration**:

Non-residents can declare lower profits than the presumptive rate if they maintain detailed accounts and undergo an audit. This provision ensures flexibility and fairness, allowing businesses to reflect actual economic conditions.

4. **Restrictions on Deductions and Set-offs**:

The clause restricts the allowance of losses, deductions, or depreciation against the presumptive income, ensuring simplicity and consistency in tax calculations.

Comparative Analysis with Existing Sections

Section	Business Activity	Presumptive Rate	Comparison with Clause 61
44B	Operation of ships (excluding cruise ships)	7.5%	Similar to Sr. no. 1 of the Table in Clause 61(2), but Clause 61 includes additional charges like demurrage.
44BB	Services related to mineral oils	10%	Clause Sr. no. 5 of the Table in Clause 61(2) aligns with 44BB but extends to services outside India received in India.
44BBA	Operation of aircraft	5%	Consistent with Sr. no. 3 of the Table in Clause 61(2), focusing on international carriage.
44BBB	Civil construction in turnkey power projects	10%	Clause Sr. no. 4 of the Table in Clause 61(2) mirrors 44BBB but specifies government approval.
44BBC	Operation of cruise ships	20%	Identical to Sr. no. 2 of the Table in Clause 61(2), emphasizing passenger carriage.
44BBD (Proposed)	Services for electronics manufacturing	25%	Sr. no. 6 of the Table in Clause 61(2) introduces a similar provision for electronics, emphasizing technology services.

Practical Implications

Clause 61 has significant implications for non-resident businesses and the Indian economy. By simplifying tax compliance, it reduces the administrative burden on non-residents, potentially increasing foreign investment in the specified sectors. However, businesses must carefully assess the presumptive rates to determine their tax liability accurately. The provision also necessitates compliance with specific conditions, such as maintaining records and undergoing audits if opting for lower declared profits.

Conclusion

Clause 61 of the Income Tax Bill, 2025, represents a strategic move to enhance India's attractiveness as a business destination for non-residents. By offering a presumptive taxation scheme, the clause simplifies tax compliance and provides certainty in tax liabilities. While it aligns closely with existing sections of the Income Tax Act, it introduces nuanced provisions to address the complexities of modern business operations. Future amendments or judicial interpretations may further refine its application, ensuring it meets the evolving needs of the global business environment.

Full Text:

Clause 61 Special provision for computation of income on presumptive basis in respect of certain business activities of certain non-residents.

Dated: 11-3-2025