Income-Tax Act 2025: Changes in International Tax and Transfer Pricing Provisions

The Income-tax Act, 2025 (“ITA 2025”) marks a structural overhaul of India’s direct tax legislation, replacing the six-decade-old Income-tax Act, 1961 (“ITA 1961”) with effect from 1 April 2026. In international tax and transfer pricing, ITA 2025 preserves the substantive foundation of ITA 1961, focusing on structure, coherence and interpretational certainty. Indirect transfer rules have been re-drafted, with refined language that broadens the scope of taxable offshore interests while omitting the earlier retrospective deeming phrase “shall always be deemed,” thereby signaling a shift toward prospective clarity. Transfer Pricing provisions remain largely intact, though key clarifications include the uniform applicability of the ±3% tolerance range even where a single arm’s-length price is determined, and a re-organised definition of Associated Enterprises that simplifies interpretational hierarchy and integrates Specified Domestic Transactions within the AE framework. Withholding tax provisions undergo the most significant structural rationalisation. Forty-three TDS sections of ITA 1961 are consolidated into a single comprehensive Section 393, supported by tabular presentation and expanded eligibility for lower/nil deduction certificates, including for non-residents. Presumptive taxation provisions applicable to non-residents are similarly consolidated. Overall, ITA 2025 enhances readability and structural coherence but does no