“International Transactions under the New Tax Regime: What Changes under the Income Tax Act, 2025?”

Introduction

The Income Tax Act, 2025, which is set to replace the six-decade-old Income Tax Act, 1961, will come into force on April 1, 2026. The new legislation aims to achieve comprehensive simplification and modernisation of India’s direct tax framework. The amendments emphasise three core principles: textual simplification, structural simplification, and improved clarity and coherence in interpretation. From the outset, India has followed the OECD’s guidelines on transfer pricing for international transactions. Under the new Act, these principles have been refined and expanded to provide greater granularity, transparency, and alignment with global standards, reflecting a broader international perspective. To enhance clarity and streamline compliance, the government has also restructured procedures that previously created complexities under the 1961 Act, particularly those related to tackling domestic tax avoidance.

The Objective behind the enactment of the provision for preventing tax avoidance through manipulation of price in case when transaction between associated enterprises specially involvement of non-resident. By more clarification to the international transaction, the legislative intent is to protect the Indian tax base from profits shifting in international transactions. To enforce Transfer Pricing regulations. These rules ensure that transactions between related entities are priced fairly, at an 'arm's length price' to prevent tax avoidance. Income Tax Act, 2025 marks a significant step toward modernizing India’s taxation framework. This new act aims to simplify tax laws, improve compliance, and enhance transparency. The government's objective is to align taxation with the evolving economic landscape, making it easier for businesses and individuals to navigate the system.

Time for Change The Definition 

Many Courts and tribunals in India have repeatedly highlighted interpretational challenges arising from the existing definition of “international transaction” under Section 92B of the Income-Tax Act, 1961, indicating the need for legislative reconsideration. In the AithentTechnologiescases before the Delhi ITAT, the tribunal observed that the statute does not clearly address whether dealings between a head office and its foreign branch constitute “international transactions”, noting that the requirement of two associated enterprises one of which must be a non-resident creates ambiguity when applied to intra-entity branch transactions, thereby suggesting that the definition may require legislative refinement to avoid inconsistent outcomes. The tribunal also acknowledged that the inclusion or exclusion of branch-related allocations can significantly affect transfer pricing adjustments, further underscoring limitations in the statutory wording. Similar concerns have arisen in special bench rulings dealing with foreign enterprises and their Indian permanent establishments, where conflicting views emerged on whether such internal dealings fall within the meaning of Section 92B, revealing conceptual uncertainties within the definition itself.

Judicial commentary in transfer-pricing cases such as those involving BhartiAirtelLtd. case has likewise pointed out that the current definition does not adequately capture mithe commercial realities of financial arrangements like corporate guarantees, intra-group loans, and service allocations, leading to disputes over their categorisation as international transactions. Collectively, these decisions reflect a consistent judicial sentiment that the scope, structure, and clarity of Section 92B require reconsideration or potential legislative amendment to ensure certainty, coherence, and alignment with evolving transfer-pricing principles.

NewProvisionsfor ‘InternationalTransactions’

The new Income Tax Act, 2025 primarily maintains the existing framework for international transactions but came up with greater clarity, expanded scope for certain areas like intangibles, and revised rules for Tax Collected at Source on foreign remittances. The core principles of transfer pricing remain in effect to prevent tax avoidance. The provisions for the international transactions largely reflect those previously in Section 92B of the 1961 Act, but are now consolidated under a new section in the 2025 Act 

DefinitionofInternationaltransaction

The Income Tax Act, 2025 introduces a more detailed and structured definition of international transactions under Clause 1 of the section 163 prescribes the definition of the word international transaction, where given two essential ingredients, firstly the transaction must be between two or more associated enterprises and secondly there is mandatory to one party to be non-resident.

TangibleandIntangiblepropertytransaction 

Under Section 163(a), the new Act explicitly enumerates tangible property transactions such as the purchase, sale, transfer, or lease of vehicles, machinery, equipment, tools, plant, furniture, commodities, and any other article or product, thereby eliminating interpretational gaps seen earlier when taxpayers and authorities disputed whether certain assets fell within the scope of transfer-pricing provisions. This granular listing brings clarity, reduces litigation, and ensures uniform treatment across industries. Additionally, Section 163(b) strengthens the framework for intangible property transactions by expressly covering the purchase, sale, transfer, lease, or use of intangibles including copyrights, patents, trademarks, licences, franchises, customer lists, industrial designs, and other business or commercial rights of similar nature. This is a significant improvement over the 1961 Act, where the definition of intangibles was often interpreted inconsistently due to its limited and illustrative nature. By formally expanding the scope and aligning it with OECD/BEPS-inspired categorisation, the 2025 Act provides precise legal recognition of modern intangible assets particularly digital and technology-driven rights, which previously lacked explicit statutory treatment. 

CapitalFinancing

The new provision Section 163(c) clearly encompasses all forms of lending and borrowing, whether long-term or short-term, including inter-company loans, guarantees, and other financing mechanisms between associated enterprises. It further includes the purchase or sale of marketable securities and explicitly brings within its scope any type of advance, payment, deferred payment, receivable, or business-related debt, irrespective of whether such transactions arise directly or indirectly. This expanded and unambiguous wording ensures that even implicit or non-cash financing arrangements such as extended credit terms, interest-free advances, group guarantees, or delayed receivables fall within the transfer pricing framework, eliminating interpretational doubts that plagued the earlier regime. By codifying these transactions in clear statutory language and aligning them with OECD-consistent definitions, the 2025 Act strengthens regulatory certainty, reduces disputes, and ensures arm’s-length pricing of intra-group financial dealings. 

ProvisionofServices

The new provision expressly includes a wide spectrum of service categories such as market research, market development, marketing management, administration, technical assistance, repair and maintenance, design, consultancy, agency, scientific research, legal, and accounting services. This inclusive language ensures that both core operational services and ancillary support services are brought within the scope of transfer pricing regulation, thereby preventing selective interpretation and under-reporting of inter-company service arrangements. By explicitly listing diverse service activities, the provision eliminates interpretational uncertainty and aligns India’s transfer pricing framework with international standards prescribed by the OECD Transfer Pricing Guidelines and BEPS Action Plans. The statutory recognition of modern service categories particularly those involving technology, data, and consultancy reflects an understanding of contemporary global business models. 

BusinessRestructuringorReorganisation

Section 163(e) of the Income Tax Act, 2025 marks a major evolution in India’s transfer-pricing framework by expressly including business restructuring and reorganisation within the scope of international transactions, irrespective of whether such arrangements have any immediate or deferred impact on profits, income, losses, or asset positions. Under the 1961 Act, the absence of a clear statutory reference often led to disputes over whether group reorganisations such as shifting functions, transferring risks, reallocating assets, centralising operations, or altering supply-chain structures constituted international transactions requiring benchmarking. The new provision removes that ambiguity by aligning Indian law with global best practices and OECD-BEPS guidance, recognising that restructuring can convey significant economic value even when no direct consideration is exchanged. 

CostSharingArrangements

Section 163(f) of the Income Tax Act, 2025 explicitly recognises cost-sharing arrangements between associated enterprises as international transactions, bringing greater clarity and regulatory certainty to a common cross-border practice. These arrangements cover mutual agreements for the allocation, apportionment, or contribution toward costs or expenses incurred in connection with benefits, services, or facilities provided or to be provided, including shared services, research and development, or other group-wide functions. Under the 1961 Act, the treatment of such arrangements was often ambiguous, resulting in disputes over whether contributions to group costs qualified as taxable international transactions or how they should be benchmarked. By codifying these transactions, the 2025 Act ensures that all parties in a cost-sharing arrangement are accountable under the transfer-pricing regime and that contributions are evaluated on an arm’s-length basis. This provision aligns Indian law with OECD transfer-pricing principles, enhances transparency in intra-group cost allocations, and prevents profit shifting or underreporting, thereby strengthening compliance, reducing disputes, and supporting fair taxation in multinational operations.

ResidualClause

Section 163(g) of the Income Tax Act, 2025 introduces a residual or “catch-all” clause to capture any other transaction between associated enterprises that may affect their profits, income, losses, or assets but does not fall within the explicitly listed categories. This provision addresses a key limitation under the 1961 Act, where certain novel or unconventional cross-border transactions such as emerging digital, technological, or hybrid arrangements could potentially escape transfer-pricing scrutiny due to the narrow definitions of tangible property, intangibles, services, or financial transactions. By including this broad residual category, the 2025 Act ensures that all economically significant transactions are subject to arm’s-length assessment, preventing tax avoidance through structuring or technical gaps. This clause reflects a forward-looking legislative approach, providing flexibility to accommodate evolving business models while maintaining alignment with OECD guidelines, enhancing transparency, and strengthening compliance for multinational enterprises operating in India.

DeemedInternationalTransactions

Clause 163(2) of the Income Tax Act, 2025 introduces the concept of deemed international transactions, significantly expanding the scope of transfer-pricing provisions to include indirect or structured arrangements. Under this clause, a transaction between an enterprise and a person who is not an associated enterprise is treated as an international transaction if there exists a prior agreement with, or the terms of the transaction are substantively determined by, an associated enterprise, and at least one of the parties involved is a non-resident. This provision addresses a critical gap under the 1961 Act, where taxpayers could potentially circumvent transfer pricing rules by routing transactions through intermediaries or third parties. By capturing such indirect arrangements, the 2025 Act ensures that all economically significant cross-border dealings are subject to arm’s-length pricing, thereby strengthening anti-avoidance measures and reducing the scope for profit shifting through interposed entities.

IntangibleProperty

Clause 163(3) of the Income Tax Act, 2025 provides a comprehensive and inclusive definition of intangible property, reflecting the modern business environment and evolving forms of value creation. It enumerates a wide range of intangibles, including marketing-related rights such as trademarks and logos, technology-related assets like patents and technical know-how, artistic works including literary, musical, and visual creations, and data processing intangibles such as proprietary software and integrated databases. Additionally, it covers engineering designs, customer-related assets like contracts and relationships, contract-related intangibles such as franchise and licence agreements, human capital-related rights, location-specific interests, goodwill, and methods, programmes, or technical data that derive value from intellectual content rather than physical form. This expansive definition addresses ambiguities under the 1961 Act, ensuring that all forms of economically valuable intellectual property are captured within the transfer-pricing regime, thereby aligning India’s framework with OECD guidelines and international best practices while enhancing certainty and compliance in cross-border transactions.

ComparativelyAnalysisBetweenNewAndOldTaxAct  

A comparative examination of international transactions under the old Income Tax Act, 1961 and the new Income Tax Act, 2025 reveals a clear shift toward broader, principle-based regulation. Under the old regime, the definition of “international transaction” was narrower and limited to specifically enumerated categories, often leading to interpretational disputes. In contrast, the Act of 2025 adopts a wider and principle-driven definition that captures a broader spectrum of cross-border dealings. Similarly, while deemed transactions under the old Act were covered only through limited explanations, the new Act explicitly incorporates deemed international transactions to ensure comprehensive compliance. Business restructuring, an area that historically lacked clarity was not expressly included earlier, but is now specifically recognised under the 2025 Act, bringing reorganizations, mergers, and functional reallocations within the transfer-pricing framework. Further, elements such as corporate guarantees, intangibles, and cost-sharing arrangements, which previously fell into grey areas and were frequently litigated due to implicit and fragmented references, are now clearly included under the new Act. Finally, the exclusion clause under the old regime suffered from ambiguous scope, whereas the 2025 Act resolves this by expressly granting the CBDT the power to notify exclusions, thereby ensuring adaptability and regulatory certainty.

ImpactOfTheNewProvision 

Due to alignment with the world standard especially OECD guidelines, This act provision on international transactions have world wide implications such as section 163 cover the wide areas including intangible and indirect dealing related transactions. Additionally, under the next tax regime, taxpayers are required to produce more documentation for cost sharing, business restructuring and financial arrangements. In the end, the new provision increased the burden on administrative authority to strictly examine the international transactions, which can lead to an increased litigation process. Due to administrative complexity, there is a chance to increase litigation in the absence of clear guidance, which will be required to avoid complexity.

Conclusion

The introduction of the Income Tax Act, 2025 marks a significant and progressive shift in India’s tax architecture, particularly in the domain of international transactions. By simplifying language, removing redundant and repetitive provisions, and reorganising sections logically, the new Act substantially enhances readability and ease of navigation compared to the 1961 regime. These structural and conceptual improvements directly address long-standing interpretational issues under the previous Act especially those relating to the scope, categorisation, and treatment of international transactions thereby reducing ambiguity and the risk of litigation. For non-residents and cross-border entities, the clarity brought in by the revised framework is especially valuable, as it strengthens fairness and predictability in assessment, and aligns India more closely with global transfer-pricing standards.

Moreover, the Act contributes meaningfully to India’s broader economic objectives. By creating a tax system that is more transparent, consistent, and business-friendly, it supports the government’s vision of easing compliance burdens and promoting a stable investment climate. A clearly defined and modernised approach to international transactions not only facilitates smoother cross-border operations but also enhances India’s attractiveness as a destination for foreign investment. Overall, the Income Tax Act, 2025 reflects the government’s commitment to simplification, certainty, and global competitiveness, positioning India for stronger economic integration and sustained growth in the international marketplace.