The Economic Survey 2025-26 has proposed greater coordination between income tax and customs authorities in the valuation of related-party imports, citing the need to lower compliance costs, reduce litigation and make India more attractive for global manufacturing and investment.
In the chapter on the external sector titled "Playing the Long Game", the Survey highlighted a long-standing challenge faced by companies operating in global value chains (GVCs), the same import transaction being reviewed independently by multiple tax authorities under different legal frameworks.
Overlapping Scrutiny, Rising Costs
Under existing laws, income tax authorities apply transfer pricing provisions to check over-invoicing of imports that may be used to shift profits outside India. In parallel, customs authorities assess valuation to prevent under-invoicing aimed at reducing customs duties. Although both systems are grounded in the arm's length principle and draw from OECD and World Customs Organization standards, their implementation often runs on separate tracks.
The Survey observed that this fragmented approach leads to duplication of documentation, higher transaction costs, and in some cases, contradictory valuation conclusions, increasing uncertainty for businesses.
Call for Convergence
Pointing to the conceptual overlap between the two valuation regimes, the Survey said there is scope for a collaborative convergence model that aligns valuation methodologies and documentation requirements across departments.
It recommended a structured coordination framework involving common valuation approaches, shared documentation and coordinated administrative reviews, while ensuring that revenue safeguards remain intact.
Impact on Manufacturing and Investment
According to the Survey, a harmonised valuation mechanism would reduce compliance burden, minimise disputes and enhance transparency in cross-border trade. These changes, it said, are essential for improving ease of doing business and positioning India as a competitive hub within global supply chains.
Industry experts welcomed the proposal, noting that convergence between income tax and customs authorities could significantly reduce litigation and compliance friction for businesses engaged in cross-border trade.
"Aligned methodologies and coordinated interaction between tax authorities can deliver greater certainty for businesses, lower compliance costs and protect revenue interests, while improving India’s attractiveness as a global manufacturing and investment destination," a tax expert said.
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