India

At a glance

Corporate Income Tax Rate 32.44% (a)
Tax rate applied on short term capital gains 32.44% (b)
Tax rate applied on long term capital gains 21.63% (c)
Tax rate applied on branch profits 0%
   
Other taxes (e.g. local or state tax) yes
   
Withholding taxes (standard rates)  
on dividends N.A.
on branch profit remittance N.A.
on interest 20%
on royalties 10%
   
Loss carry back period N.A.
Loss carry forward period 8 years

a) This rate is applicable where the taxable income exceeds INR 10 million. The rate of tax otherwise is 30.9%. In case of non-resident corporate entities, where the taxable income exceeds INR 10 million, the rate of income tax is 42.02%. The rate of tax otherwise is 41.2%.

b) This rate is applicable in respect of corporate Indian residents having an income above INR 10 million. Otherwise, the rate of tax is 30.9%. A tax rate of 16.22% will be applicable if the short term capital gains arise on sale of listed equity shares or units in an equity-oriented mutual fund, effected on a stock exchange in India. However, nominal amount of securities transaction is payable.

c) This rate is applicable in respect of corporate Indian residents having an income above INR 10 million. Otherwise, the rate of tax is 20.6%. Long term capital gains arising on sale of listed equity shares or units in equity-oriented mutual funds, effected on a stock exchange in India, are exempt from tax. However, nominal amount of securities transaction is payable.

Introduction

India has a well-developed and competitive tax structure, which is rapidly adopting global best practices. Corporate tax is a levy by the Central Government and is uniform through the country. Corporates pay taxes on their net income after deducting all relevant expenditure. In case of corporate not having taxable income/having inadequate taxable income but having book profits, tax is levied on book profits at specified rates. A resident is taxed on his worldwide income, wherever arising. A non-resident is taxed only in respect of income sourced in India. India has preferential withholding tax rates for royalties and technical services fee arising in India. India has Double Taxation Avoidance Treaty with all major countries of the world. 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, corporate restructuring is treated as tax neutral, subject to fulfillment of specified conditions. India offers several tax incentives for businesses, in the form of tax exemption for specified period, for specified industries, e.g. infrastructure, oil and gas etc. There is also a tax incentive for units which set up operations in designated geographical areas. Tax incentives are also available for developers of Special Economic Zones, as well as businesses operating out of such Zones. There are several Special Economic Zones which are currently operational, and several others are at development stage. Special Economic Zones offer opportunities for service sector as well as manufacturing sector to carry on their business in a virtually tax free zone. The Government is proposing to replace the current tax statute with a new Direct Taxes Code. The Code, as the draft reads currently, contains several new concepts as far as India is concerned. Some of the proposals in the Code include introduction of an overarching set of General Anti-Avoidance rules, Advance Pricing Agreements for determining arm’s length price/range in transfer pricing cases, Controlled Foreign Company provisions, which would seek to tax unremitted income of foreign subsidiaries of Indian residents in certain cases etc.

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