India Likely to Include 15% Minimum Corporate Tax Rule in Income Tax Act Review

By: Admin
October 14, 2024
Categories: Income Tax News|News
4 Min Read

India is expected to adopt the 15% global minimum corporate tax rule as part of an ongoing review of the Income Tax Act. This would align India with the OECD/G20 Inclusive Framework’s Pillar 2, aimed at preventing profit shifting by multinational corporations (MNCs) to low-tax jurisdictions. The government plans to introduce an enabling provision in the I-T Act to facilitate compliance, with changes likely to be included in the FY26 Budget, according to sources.

Pillar 2-GloBE Rules would ensure that MNCs, defined as those with a global turnover exceeding 750 million euros, pay a minimum Effective Tax Rate (ETR) of 15% globally. Currently, India’s corporate tax rate stands at 25.17%, so the new rules would allow the government to impose a “top-up tax” on MNCs reporting lower tax rates in foreign jurisdictions.

For instance, an MNC operating in the UAE with a 9% tax rate would have to pay an additional 6% top-up tax if both India and the UAE adopt Pillar 2. To make the rules operational, amendments to the tax laws would introduce mechanisms like the Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR).

Experts say that while the Pillar-2 regime will protect India’s tax base, the actual revenue gain could be limited, as many countries are likely to incorporate these global minimum tax rates into their domestic laws, reducing the scope for India to collect additional revenue.

MNCs will need to adjust their internal systems to comply with Pillar 2 rules, including changes in data collection, accounting policies, and internal control frameworks to align with global tax reporting standards.

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