India
At a glance
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Corporate Income-tax rate: The base tax rate for foreign companies and their branches continue to remain at 40%, India has recently introduced beneficial tax regimes for domestic Indian companies. Tax rates for domestic companies have been reduced substantially with an intention to make Indian tax regime globally competitive.
Domestic manufacturing companies incorporated on or after 1 October 2019 which commence manufacturing activities by 31 March 2023, may opt for a lowest tax rate of 15%. Certain conditions need to be fulfilled by such companies. Other domestic companies may also opt for a beneficial tax rate of 22%, if they forego certain deductions and exemptions. Companies opting for the said beneficial tax rates are also exempted from the provisions of Minimum Alternate Tax.
Other domestic companies not opting for the above beneficial tax regimes continue to pay tax at 30%. Such tax rate is reduced to 25% for companies who (i) forego certain deductions and exemptions or (ii) have a turnover or gross receipts up to INR 400 crores in Financial Year 2018-19. Provisions of Minimum Alternate Tax are applicable to such companies wherein companies are required to pay a minimum tax at the rate of 15% on adjusted book profits, if taxability under the normal provisions fall short of such minimum alternate tax. Credit of such minimum alternate tax paid may be claimed in subsequent years when taxes are paid under normal provisions.
Base tax rates are increased by a surcharge at the specified rates.
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Long term capital gains: Long-term capital gains are generally taxed at a tax rate of 20%. While computing such capital gains, adjustment for inflation or foreign fluctuation is allowed to the cost of asset. Earlier, entire long term capital gains on sale of listed securities were exempt, subject to fulfilment of certain conditions. Now, gains to the extent of INR 1 lakh are exempt and the balance gains from listed shares is taxed at the rate of 10%. In case of transfer of unlisted share or securities by non-residents or foreign company, long term capital gains calculated without adjustment for inflation or foreign fluctuation are taxed at the rate of 10%.
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Withholding tax: Withholding tax rates provided under the Indian tax law are required to be further increased by applicable surcharge and tax. India has entered into tax treaties with many countries which prescribe beneficial withholding rate prescribed under such tax treaties. Treaty rates may be adopted if all the conditions for claiming treaty benefits are satisfied. In some case where PAN is not available with the payee tax may be required to be deducted at higher of applicable rate or 20%.
Introduction
India has a well-developed tax structure in line with global best practices. India has federal system with division of power between the Center and the States. Corporate tax is a levy by the Central Government and is uniform throughout the country. GST is levied by Central and respective State based on a decision at the joint-framework. Corporates pay taxes on their net income after deducting all relevant expenditure and exemptions. In some cases, where corporates do not have taxable income / have inadequate taxable income but have book profits, tax is levied on book profits at specified rates. An Indian resident is taxed on his worldwide income whereas a non-resident is taxed only in respect of income sourced in India. India has Double Taxation Avoidance Treaty with all major countries of the world which offer beneficial tax rates to non-residents. Some of the countries have been given Most Favoured Nation status and these countries enjoy the most beneficial tax rates under treaties. Transfer pricing regime applies to all international transactions between residents and non-resident related parties and detailed rules are in place to determine arm’s length price of international transactions. In order to impart certainty to taxation of transactions undertaken or to be undertaken by non-residents, there are provisions for obtaining an Advance Ruling on tax matters. Such a ruling is binding on the taxpayer as well as the Revenue. In order to encourage corporate re-structuring and revive ailing companies, certain transactions are treated as tax neutral for the companies as well as their shareholders, subject to fulfilment of specified conditions. At the same time, India has in place specific as well as general anti avoidance rules to restrict any kind of tax abuse or tax evasion. Indian domestic law, as a policy, is phasing-out tax holidays and is moving to a lower corporate tax regime. The notable tax incentive includes a lower tax rate for new manufacturing set-ups @ 15% (plus surcharge and cess) and new set-up at the International Financial Services Center (IFSC). India has been a member of the OECD’s Inclusive Framework and has signed the BEPS Multilateral Instrument. India however is not a OECD member. India tax website now provides abundant information on Indian tax as well as other laws - Home - Central Board of Direct Taxes, Government of India (incometaxindia.gov.in).
