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The Indian government today announced its budget proposals for 2021–22, including several key budget proposals that affect international taxation.

The proposed amendments suggest that the government’s intent is to provide clarity to India’s tax regime for foreign investors and appears consistent with the Indian government’s objective to provide a transparent and efficient regime that promotes investment and employment in India.

India Budget 2021 has proposed an alternate dispute resolution route by abolishing the Authority of Advance Rulings and introducing a Board for Advance Ruling. This is expected to address the gaps and long waiting periods associated with obtaining an advance ruling in India.

Clarifications aim to streamline India’s digital tax (known as the equalisation levy) by restricting its scope on income streams already categorized as royalties or fees for technical services and adding clarifications concerning the nature of activities.

Simultaneously, the equalization levy’s scope has been expanded to cover various online activities, including the acceptance of and offer for sale; placing a purchase order; acceptance of a purchase order; payment of consideration; and a supply of goods or provision of services, partly or wholly.

The India budget has also proposed a slew of clarifications affecting international taxation, such as a clarification of the scope of applicability of domestic tax deductions at source when income is not taxable under a tax treaty and clarification of transfer pricing secondary adjustments and advance pricing agreement related adjustments, including when book profits are to be computed.

The new budget has also proposed introducing a definition of “liable to tax,” which is expected to facilitate determinations under multilateral instruments and double tax treaties.

In addition, changes are proposed to rationalise the avenues for investment by sovereign wealth funds, seeking to enable more eligible funds in India.

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