Effective tax structuring in India requires coordinating holding architecture, financing arrangements, intellectual property ownership and exit planning within a legal framework that has seen significant legislative change, including the enactment of the Income-tax Act 2025 (Act 30 of 2025), which comes into force on 1 April 2026. International businesses operating in or through India face layered risks: transfer pricing exposure, withholding tax obligations, substance requirements and an active tax authority in the Central Board of Direct Taxes. Ferraz & Whitmore advises clients on structuring, risk mitigation and dispute prevention at each stage of the investment lifecycle.
When Businesses Need Specialised Tax Structuring Advice in India
Most cross-border investors approach India with a general awareness that the jurisdiction is complex, but underestimate how quickly a structural decision made at entry can constrain options at exit. The triggers that bring clients to us at the decision stage typically include a missed or delayed market entry, a deal that stalled because of unresolved withholding tax questions, a post-acquisition tax audit, or a reorganisation that generated unexpected Indian tax exposure.
The circumstances that most commonly require dedicated tax structuring work in India include:
- Establishing or restructuring a holding company above an Indian operating entity, where the choice of intermediate jurisdiction affects withholding tax on dividends, interest and royalties, as well as eligibility for any applicable treaty benefits.
- Financing structures involving inbound loans or hybrid instruments, where interest deductibility and characterisation under India's domestic rules interact with the anti-hybrid provisions influenced by EU-level thinking under Directive (EU) 2017/952 in the investor's home jurisdiction.
- Intellectual property ownership and licensing into India, where royalty withholding tax and transfer pricing requirements for intercompany IP arrangements require careful calibration.
- Exits and redomiciliation, where India's rules on indirect transfers of Indian assets, capital gains characterisation and the interaction with treaty residence of the selling entity are all live issues.
- Participation exemption planning in the investor's home jurisdiction, which depends on whether the Indian subsidiary meets the relevant substance and activity thresholds required by the holding country.
If your organisation has recently experienced a transaction delay or a structuring decision that did not deliver the anticipated outcome, an early conversation with specialists in Indian tax law can clarify the available paths forward. You are welcome to write to info@ferrazwhitmore.com or visit our contacts page to arrange an initial discussion.
Legal Instruments and Procedures in India
India's tax system operates under a framework that is currently in transition. The Income-tax Act 2025 (Act 30 of 2025) has been enacted and will enter into force on 1 April 2026, consolidating and modernising the existing legislation. Until that date, the existing income tax legislation continues to apply. Clients planning structures that will be in place beyond April 2026 must assess how the new Act affects their arrangements.
Key procedural instruments relevant to tax structuring and risk management include:
- Board for Advance Rulings: India provides a mechanism for obtaining advance certainty on the tax treatment of proposed transactions. The Board for Advance Rulings allows applicants to obtain a binding ruling before a transaction is executed, reducing the risk of subsequent challenge. The process has timelines and admissibility conditions that must be assessed on a case-by-case basis. For a comparative perspective on how advance ruling mechanisms operate in other jurisdictions, our guide on advance tax rulings in Ireland provides useful context.
- Transfer pricing compliance: India operates a detailed transfer pricing regime administered by the Income Tax Department. Intercompany transactions – including loans, IP licences, service arrangements and management fees – must be priced on arm's length terms and documented accordingly. Transfer pricing audits are a frequent source of dispute for multinational groups with Indian operations.
- GIFT City IFSC incentives: The Gujarat International Finance Tec-City International Financial Services Centre offers a distinct tax and regulatory environment for eligible financial services and fund structures. Accessing these incentives requires compliance with SEBI, RBI and IFSCA requirements in addition to tax conditions, and the substance requirements must be genuinely met.
- Mandatory disclosure and DAC6 considerations: Where a cross-border arrangement has a reportable element under Directive (EU) 2018/822 (DAC6) in a European jurisdiction involved in the structure, disclosure obligations arise based on defined hallmarks. Indian domestic rules do not replicate DAC6, but the European leg of a structure may trigger reporting obligations in the EU member state concerned.
- Anti-abuse provisions: India's general anti-avoidance rules and the treaty-level principal purpose test mean that structures must have genuine commercial substance. The EU Anti-Tax Avoidance Directive framework – including the interest limitation rule, exit taxation provisions, CFC rules and the general anti-abuse rule under Directive (EU) 2016/1164 – applies to European entities in the structure, and its interaction with Indian rules must be mapped carefully.
Tax Risk Assessment and the Dispute Resolution Path
Identifying and managing tax risk before it crystallises into a dispute is central to the service we provide. A tax due diligence exercise – whether conducted in the context of an acquisition, a reorganisation or an ongoing compliance review – should produce a clear picture of open years, uncertain positions, transfer pricing exposure and any arrangements that could attract scrutiny under the general anti-avoidance framework.
A tax control framework, adapted to the Indian operating environment, gives management a structured basis for monitoring compliance obligations across the Indian entity and its intercompany dealings. This is particularly relevant where the group has a presence in multiple Indian states or operates across sectors that are subject to regulatory oversight by SEBI, RBI or the Data Protection Board.
Where a dispute does arise, India's dispute resolution path follows a defined sequence:
- Initial assessment and rectification proceedings before the assessing officer.
- Appeal to the Commissioner (Appeals) or, in specified cases, the Dispute Resolution Panel – a route available to foreign companies and transfer pricing cases.
- Further appeal to the Income Tax Appellate Tribunal (ITAT), which is the principal fact-finding appellate body and has specialist benches for complex matters.
- Appeals on questions of law to the High Court and ultimately the Supreme Court of India.
Each stage has procedural requirements, time limits and evidential standards that must be respected. Early engagement with experienced counsel reduces the risk of procedural defaults that narrow the options available at later stages. Our dedicated page on tax disputes in India sets out the litigation and dispute resolution process in more detail.
Typical Pitfalls in Cross-Border Tax Structuring for India
Experience with clients who have encountered difficulties in India reveals a consistent set of avoidable errors:
- Substance gaps in intermediate holding companies. A holding company placed between a European parent and an Indian subsidiary for withholding tax mitigation purposes will not achieve its objective if it lacks genuine economic substance. Indian authorities and, increasingly, European tax authorities scrutinise whether the entity has decision-making capacity, qualified personnel and real operational presence.
- Failure to align treaty positions with domestic characterisation. A payment that is a dividend under Indian domestic law may be characterised differently by the treaty partner's domestic rules, creating mismatches that generate unexpected tax costs or disclosure obligations.
- Underestimating transfer pricing risk on IP and services. Groups that charge management fees or royalties into India without contemporaneous economic analysis and documentation face significant exposure on audit, including adjustments that compound across multiple open years.
- Overlooking NCLT procedural requirements in reorganisations. Corporate restructurings that have tax objectives – mergers, demergers, slump sales – often require approval from the National Company Law Tribunal. Tax advisers and corporate counsel must work in parallel to avoid a timeline mismatch that jeopardises the tax treatment.
- Late engagement with the advance ruling mechanism. Applications to the Board for Advance Rulings must be made before the transaction is executed. Clients who seek certainty after the fact have no access to this mechanism and must manage the resulting uncertainty through other means.
- Not accounting for the Income-tax Act 2025 transition. Structures being put in place now that will be operative after 1 April 2026 must be analysed under the new Act, not only the existing legislation.
How Ferraz & Whitmore Approaches Tax Structuring in India
Our work on Indian tax matters is conducted in close coordination with our corporate law practice. The tax and corporate dimensions of a structure – entry vehicle, shareholder agreements, financing documentation, regulatory approvals from SEBI and RBI, and the data governance framework required by the Data Protection Board – must be considered as a single integrated question, not as separate workstreams.
For clients who have experienced a lost opportunity or a transaction that did not complete as planned, our starting point is a structured review of the existing position: what arrangements are in place, where the exposure lies, and what procedural options remain available. This review informs a prioritised action plan rather than a general commentary.
We also assist clients in developing internal tax control frameworks calibrated to the scale and complexity of their Indian operations, and in preparing and managing advance ruling applications where the transaction profile warrants it.
For an overview of the broader Indian tax environment and the general legislative framework, our India tax law overview page provides context. For matters involving Indian corporate law, regulatory approvals and transaction structuring beyond the tax dimension, our corporate law in India page describes the related services we provide.
Self-Assessment Checklist: Tax Structuring Readiness for India
The following questions are indicative. If your organisation cannot answer one or more of them with confidence, there may be a structuring or compliance gap worth examining.
- Has the holding structure above your Indian entity been reviewed for substance requirements in the past two years?
- Are all intercompany transactions with Indian entities – loans, IP licences, services, guarantees – supported by contemporaneous transfer pricing documentation?
- Has the impact of the Income-tax Act 2025, in force from 1 April 2026, been assessed for your existing arrangements?
- If you are considering accessing GIFT City IFSC incentives, have the substance and regulatory conditions been mapped against your operating model?
- Are any planned transactions or reorganisations subject to an advance ruling application, or has the option been considered and excluded on reasoned grounds?
- If there is a European entity in the structure, have the ATAD interest limitation, CFC and anti-abuse rules been applied to the Indian cash flows?
- Has the dispute resolution timeline been factored into the planning for any positions that are currently under audit or assessment?
If you would like to work through this checklist in the context of your specific situation, or if a recent transaction outcome has raised questions about your current structure, we are available to discuss the position. Please write to info@ferrazwhitmore.com or use our contacts page to request a consultation with our India tax team.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.