The union budget for 2011 proposes to introduce anti-avoidance measures that will come into effect on 1 June. Accordingly, India Inc will need to be cautious in their dealings with entities located in notified jurisdictional areas (NJAs) as transactions entered into with such entities will trigger the following:
1) The need to comply with transfer pricing (TP) regulations; 2) disallowance of expenses in certain circumstances; and 3) higher withholding taxes.
The Finance Bill, 2011, proposes the introduction of section 94A in the Income Tax Act, 1961, so as to discourage transactions by Indian tax resident with persons located in any country or jurisdiction that does not effectively exchange information with India.
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Pranay Bhatia is an associate partner at Economic Laws Practice where Vidushi Maheshwari is an associate. Economic Laws Practice is a full service law firm headquartered in Mumbai and has offices in New Delhi, Pune and Ahmedabad.
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