9911796707
TMI BlogMeaning of Specified Domestic Transactions under Clause 164 of Income Tax Bill, 2025 Vs. Section 92BA of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... s that were historically applied to international transactions. The introduction and subsequent evolution of these provisions reflect the legislature's response to the need for curbing profit shifting and tax base erosion not only across borders but also within domestic group entities and specified relationships. This commentary provides an in-depth analysis of Clause 164 as proposed in the Income Tax Bill, 2025, explores its objectives, structure, and practical implications, and then undertakes a comparative analysis with the existing Section 92BA of the Income-tax Act, 1961. The purpose is to elucidate the legislative intent, highlight the changes and continuities, and assess the potential impact on taxpayers and administration. Obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Income Tax Bill, 2025 Text of the Provision Clause 164 defines "specified domestic transaction" for the purposes of the chapter on avoidance of tax. The clause enumerates several types of transactions, not being international transactions, that fall within its ambit if the aggregate value exceeds twenty crore rupees in a tax year. * Any transaction referred to in section 122; * Any transfer of goods or services referred to in section 140(9); * Any business transacted between the assessee and other person as referred to in section 140(13); * Any transaction, referred to in any other section under Chapter VIII or section 144, to which provisions of section 140(9) or (13) are applicable; * Any business transacted between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h-all, ensuring that any transaction under Chapter VIII (which may deal with deductions, incentives, or special tax regimes) or section 144 (possibly relating to assessment procedures) that invokes section 140(9) or (13) is covered. This broadens the scope to capture transactions that might otherwise escape scrutiny. e) Business between persons u/s 205(4) Section 205(4) likely addresses transactions between specified persons, possibly under new tax regimes or concessional tax rates. Bringing such transactions within the definition aims to prevent misuse of such regimes through non-arm's length dealings. f) Any other transaction as prescribed This residual clause empowers the Central Board of Direct Taxes (CBDT) or the government t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. The Rs. 20 crore threshold means that medium and large enterprises are primarily affected. Compliance will involve documentation, benchmarking, and potentially transfer pricing audits. Tax Authorities: The provision equips tax authorities with the legal basis to scrutinize high-value domestic transactions for arm's length compliance, thereby safeguarding the tax base. However, it also imposes a burden to develop expertise in domestic transfer pricing, which can be more complex due to the lack of external comparable data. Tax Advisors and Professionals: The evolving scope and periodic changes in covered transactions necessitate continuous monitoring and advisory services, increasing demand for specialized transfer pricing expertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments to specified persons u/s 40A(2)(b) Originally included, later omitted Not specifically mentioned, but could be included by prescription Key Points of Similarity * Both provisions exclude international transactions, focusing only on domestic transactions. * Both set the aggregate value threshold at Rs. 20 crore. * Both empower the government to prescribe further transactions by notification/rule. * Both aim to bring specified high-value domestic transactions within transfer pricing regulations to prevent tax avoidance. Key Points of Divergence * Reference Structure: Section 92BA uses explicit references to sections dealing with tax holidays (80A, 80-IA, 10AA, 115BAB, 115BAE), while Clause 164 uses indirect references ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han transfer pricing rules, especially after practical difficulties and litigation experienced u/s 92BA. Potential Issues and Challenges The move towards broader and more flexible definitions in Clause 164, while administratively convenient, may create interpretational uncertainties for taxpayers. The practical scope of "specified domestic transaction" will depend heavily on the content and interpretation of the cross-referenced sections. Unless accompanied by clear guidance and rules, this may increase litigation and compliance uncertainty. Another challenge is the continued burden of documentation and compliance for large business groups, especially in the absence of robust domestic comparables for benchmarking. The administration must ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
