Group Taxation Can Simplify Corporate Compliance in India

In today’s increasingly complex business landscape, companies often operate through multiple entities, sometimes for equity considerations, and at other times to comply with regulatory requirements. Yet, India’s tax system does not permit group taxation. This restriction imposes administrative burdens and constrains capital efficiency. To overcome these challenges, India requires a tailored group taxation framework designed to simplify the tax process while maintaining revenue neutrality. By drawing on global best practices and lessons from advanced economies, such a framework can streamline corporate compliance, enhance ease of doing business, unlock investment potential, and provide a structured, phased approach for large corporate groups.

At the 22nd Indo-US Economic Summit, organized by the Indo-American Chamber of Commerce, Naushad Panjwani, Chairman of Mandarus Partners and Chairman of the Finance and Corporate Law Committee of the Bombay Chartered Accountants’ Society, shared his insights in an exclusive conversation with The Interview World. He explained the concept of group taxation, illustrated how it can simplify the overall tax process, explored its potential impact on curriculum and learning approaches, and highlighted research on countries currently implementing such systems.

Here are the key takeaways from his compelling discussion.

Q: Could you elaborate on the concept of group taxation that you are proposing to the government?

A: In the business world, companies often operate through multiple organizations and entities. Sometimes this structure arises for equity-related reasons, such as the need to bring in a partner. In other cases, even a majority owner may be required to create subsidiaries. At times, the law mandates such fragmentation. For example, in India’s power sector, each generating unit must be housed in a separate SPV. As a result, businesses frequently manage a complex maze of holding companies and subsidiaries.

However, India’s tax system does not allow consolidation of group companies for the purpose of taxing net profits and losses. Many advanced economies already follow various models of group taxation, but India has yet to adopt one. To address this gap, and to improve ease of doing business while freeing capital for further investment, we partnered with IIM to commission a research study. This report examines how India could introduce a group taxation framework that preserves tax neutrality, because we do not intend to recommend any structure that reduces the government’s tax revenue.

Accordingly, we invested significant time and effort in exploring how a group taxation regime could offer meaningful benefits to corporations without diminishing the government’s tax base. That objective forms the foundation of this research paper.

Q: Will the proposed group taxation system simplify the overall tax process?

A: Yes, group taxation is poised to become significantly simpler. Today, it requires multiple return filings, involves substantial costs, and relies on complex concepts such as transfer pricing, which are often difficult to implement and challenging for many to understand. Moreover, it creates administrative burdens for the government in collecting taxes.

Our proposal addresses these issues directly. It allows the government to collect the same, or even higher, tax revenue while reducing the administrative workload. This streamlined approach benefits both businesses and tax authorities. That is the essence of the process.

Q: What kind of feedback or response has the government provided regarding the proposal for group taxation?

A: Today, we officially handed over the report to our Union Minister. Our immediate goal is to engage with half a dozen key ministers across various ministries. This effort is not just about taxation; every minister needs to understand how it can enhance ease of doing business, unlock capital, and attract foreign direct investment.

We plan to reach out to finance ministers, secretaries, revenue secretaries, and economic advisors to present this paper and explain the concept in detail. After delivering the physical copy, which the minister mentioned he will read on his flight, I also sent him a soft copy, enabling him to share it with his team.

Once we complete this engagement over the next 30 days, we will release the paper publicly and present it to corporate leaders. This will help create a broader understanding and momentum around the proposal. Importantly, this initiative is not about offering tax concessions; it is about tax simplification and improving ease of doing business, a true win-win for all stakeholders.

Q: In what ways might the adoption of group taxation influence the curriculum, learning approach, or areas of focus for students and emerging tax professionals?

A: For students, particularly those studying taxation, this will add a new section on group taxation. Beyond that, the initiative primarily targets large corporates operating within complex networks of companies. Some of these structures exist due to mandatory regulatory requirements, while others serve equity or holding purposes.

The clear impact will be the simplification of tax laws, which directly benefits large corporations. Our approach will be phased: we will begin with listed companies that have 100% subsidiaries and gradually extend the framework to other significant majority-held companies. This method ensures a structured and manageable rollout while maximizing the benefits of the reform.

Q: Could you share insights from your research on which countries currently practice group taxation?

A: We have examined the group taxation frameworks of nearly all advanced economies, with a particular focus on Australia, Germany, France, the USA, and the UK. These countries have well-established laws on group taxation, developed over many years of practice. Their advantage is also a limitation: once committed to a specific approach, reversing it becomes difficult.

We carefully analyzed the various methods of implementing group taxation, considering both their benefits and the challenges they have faced, including litigation and complex regulatory environments. Drawing on these insights, we have proposed a hybrid model that incorporates the best practices while avoiding known pitfalls.

By entering this space later, we gain a unique advantage: we can leapfrog the challenges encountered by other nations and build on their experiences to design a more efficient and practical system for India.