2010 © Neeraj Bhagat & Co1 TAXATION IN INDIA. 2 INDEX 1- Overview 2- Corporate Tax Rates 3-...

2010 © Neeraj Bhagat & Co 1

TAXATION IN INDIATAXATION IN INDIA


INDEX INDEX

1- Overview2- Corporate Tax Rates3- Distribution of Profits 4- Tax Planning Through DTAA5- Permanent Account Number (PAN)6- Books of Accounts7- Financial Year


Overview

1- The provisions of Indian Income-Tax are governed by Indian Income-Tax Act, 1961 which extends to the whole of India and became effective from 1st April 1962.

2- Every year a Budget is presented before the Parliament by the Finance Minister. One of the most important components of the Budget is the Finance Bill, which contains various amendments which are sought to be made in the area of Direct Taxes levied by the Central Government.


Corporate Tax Rates

Nature of entityNature of entity: : Tax Tax RatesRates

1- 1- Indian company whether owned by foreigners or notIndian company whether owned by foreigners or not : : A- If profit does not exceed 10 million Indian Rupees. A- If profit does not exceed 10 million Indian Rupees.

30.90%30.90%B- If profit exceeds 10 million Indian Rupees. B- If profit exceeds 10 million Indian Rupees.

33.22%33.22% 2- 2- Branch office of a foreign companyBranch office of a foreign company : : A- If profit does not exceed 10 million Indian Rupees. A- If profit does not exceed 10 million Indian Rupees.


42.23%42.23%

3- 3- Project office of a foreign companyProject office of a foreign company : :A- If profit does not exceed 10 million Indian Rupees. A- If profit does not exceed 10 million Indian Rupees.


42.23%42.23%


4- 4- Liaison OfficeLiaison Office

Not liable to tax as it is not permitted to earn any Not liable to tax as it is not permitted to earn any income and is only a cost centre. Liaison office can income and is only a cost centre. Liaison office can not enter into any commercial or business activity in not enter into any commercial or business activity in India and can undertake only Liaison and related India and can undertake only Liaison and related activities on behalf of its parent company.activities on behalf of its parent company.


Distribution Of ProfitsDistribution Of Profits

1- Indian companies are allowed to distribute profits by 1- Indian companies are allowed to distribute profits by way of Dividend. However companies would have to pay way of Dividend. However companies would have to pay Dividend Distribution Tax on amount distributed as Dividend Distribution Tax on amount distributed as dividend at following rates.dividend at following rates.

Tax RatesTax Rates

A- If profit does not exceed 10 million Indian Rupees A- If profit does not exceed 10 million Indian Rupees 15.45% 15.45%

B- If profit exceeds 10 million Indian Rupees B- If profit exceeds 10 million Indian Rupees 16.61% 16.61%

2- Foreign companies i.e. Branch offices and Project offices 2- Foreign companies i.e. Branch offices and Project offices are not required to pay any Dividend Distribution Tax.are not required to pay any Dividend Distribution Tax.


Tax Planning Through DTAATax Planning Through DTAA

1- India has entered into Double Taxation Avoidance Agreement 1- India has entered into Double Taxation Avoidance Agreement (DTAA) with various countries whereby tax paid in India is (DTAA) with various countries whereby tax paid in India is eligible for credit in foreign country. Similarly tax paid in eligible for credit in foreign country. Similarly tax paid in foreign country is eligible for credit in India. foreign country is eligible for credit in India.

2- Article 13 of DTAA allows payment of fee for technical 2- Article 13 of DTAA allows payment of fee for technical services to parent company. However this fee is subject to services to parent company. However this fee is subject to withholding tax of 10.56%. This withholding tax is eligible for withholding tax of 10.56%. This withholding tax is eligible for credit in Italy.credit in Italy.

3- Definition of technical fee as per DTAA means payments of 3- Definition of technical fee as per DTAA means payments of any amount to any person other than payments to an any amount to any person other than payments to an employee of the company for following services : employee of the company for following services :


• Managerial services, Technical services and Consultancy Managerial services, Technical services and Consultancy services including services of other personnel.services including services of other personnel.

4- No approval is required from Reserve Bank of India (RBI) 4- No approval is required from Reserve Bank of India (RBI) which is Central Bank of the country for technical fee which is Central Bank of the country for technical fee payment up to USD 1 million per project. Payment above payment up to USD 1 million per project. Payment above USD 1 million is subject to approval from RBI.USD 1 million is subject to approval from RBI.

5- Fee for Technical services is deductible expense in the 5- Fee for Technical services is deductible expense in the books of accounts of Indian entity and reduces the tax books of accounts of Indian entity and reduces the tax liability of Indian entity legally.liability of Indian entity legally.


RoyaltyRoyalty

1- Royalty as per Article 13 of one of the DTAA means 1- Royalty as per Article 13 of one of the DTAA means payments of any kind received as a consideration for the payments of any kind received as a consideration for the use or the right to use, any copyright of literary, artistic or use or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan secret formula or trade mark, design or model, plan secret formula or process, or for the use or the right to use, industrial, process, or for the use or the right to use, industrial, commercial or scientific equipment, or for information commercial or scientific equipment, or for information concerning industrial or scientific experience. concerning industrial or scientific experience.

2- Royalty is subject to withholding tax of 10.56% which is 2- Royalty is subject to withholding tax of 10.56% which is eligible for credit in foreign country.eligible for credit in foreign country.


3- Royalty can be paid by Indian entity to parent company in 3- Royalty can be paid by Indian entity to parent company in foreign country. foreign country.

4- Royalty is deductible expense in Indian books and reduces 4- Royalty is deductible expense in Indian books and reduces the profit of Indian entity legally.the profit of Indian entity legally.


Permanent Account Number Permanent Account Number (PAN)(PAN)

1- A new provision relating to Tax Deduction at Source (TDS) 1- A new provision relating to Tax Deduction at Source (TDS) under the Income Tax Act 1961 became applicable with under the Income Tax Act 1961 became applicable with effect from 1effect from 1stst April 2010. Tax at higher of the prescribed April 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transaction liable to rate or 20% will be deducted on all transaction liable to TDS, where the Permanent Account Number (PAN) of the TDS, where the Permanent Account Number (PAN) of the deductee is not available. The Law will also apply to all non-deductee is not available. The Law will also apply to all non-residents in respect of payments / remittances liable to residents in respect of payments / remittances liable to TDS. TDS.

2- PAN is Tax Id under Indian Income Tax Act and as per new 2- PAN is Tax Id under Indian Income Tax Act and as per new amendment even foreign companies intending to receive amendment even foreign companies intending to receive payments taxable under Indian Income Tax Act are required payments taxable under Indian Income Tax Act are required to quote Indian PAN. However following payments are not to quote Indian PAN. However following payments are not subject to withholding tax and therefore foreign companies subject to withholding tax and therefore foreign companies are not require to quote PAN.are not require to quote PAN.


A- Import payments from India to foreign companies.A- Import payments from India to foreign companies.

B- Marketing services rendered by Italian companies to B- Marketing services rendered by Italian companies to Indian entities in foreign country.Indian entities in foreign country.

C- Commission receivable by foreign companies for C- Commission receivable by foreign companies for business promotion out side India.business promotion out side India.

D- Profits of Airline and Shipping companies located in D- Profits of Airline and Shipping companies located in foreign countries and having branch office in India.foreign countries and having branch office in India.


Books of AccountsBooks of Accounts

1- Every Indian company including Branch office and 1- Every Indian company including Branch office and Liaison office are required to maintain books of Liaison office are required to maintain books of accounts so as to compute profit/loss derived from accounts so as to compute profit/loss derived from operations in India. Further such books of accounts are operations in India. Further such books of accounts are also required to ascertain creditors/debtors and other also required to ascertain creditors/debtors and other business transactions effected in India.business transactions effected in India.

2- Such books of accounts have to be maintained at 2- Such books of accounts have to be maintained at principal place of business carried out by the company.principal place of business carried out by the company.

3- Such books of accounts have to be maintained for a 3- Such books of accounts have to be maintained for a period of 6 years from end of the financial year.period of 6 years from end of the financial year.

4- It is a statutory requirement to maintain above books as 4- It is a statutory requirement to maintain above books as per section 44AA of Indian Income-Tax Act 1961.per section 44AA of Indian Income-Tax Act 1961.


Financial YearFinancial Year

1- Every company in India is given a choice to adopt its 1- Every company in India is given a choice to adopt its financial year. Such financial year can be more or less than financial year. Such financial year can be more or less than 12 months, however it can not exceed a period of 18 12 months, however it can not exceed a period of 18 months. Approval from Registrar of Companies is required months. Approval from Registrar of Companies is required for adopting a financial year exceeding 15 months. for adopting a financial year exceeding 15 months.

2- Foreign company setting up a subsidiary has an option to 2- Foreign company setting up a subsidiary has an option to choose January-December or any other period not choose January-December or any other period not exceeding 18 months as its financial year in India so as to exceeding 18 months as its financial year in India so as to integrate its Indian accounts with parent company outside integrate its Indian accounts with parent company outside India.India.

3- However for Income tax purposes separate financial 3- However for Income tax purposes separate financial statement for the period April-March covering 12 months statement for the period April-March covering 12 months period has to be prepared, audited and filed with the period has to be prepared, audited and filed with the authorities. authorities.


Contact usContact us

Neeraj Bhagat & Co.Neeraj Bhagat & Co. Chartered AccountantsChartered Accountants S-13,St. Soldier Tower, G-Block Commercial Complex, S-13,St. Soldier Tower, G-Block Commercial Complex, Vikas Puri, New Delhi -110018, IndiaVikas Puri, New Delhi -110018, India

M : + 91 98101 58561 T : + 91 11 45527239 F : + 91 M : + 91 98101 58561 T : + 91 11 45527239 F : + 91 11 4101447511 41014475 E :E : [email protected] [email protected]

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2010 © Neeraj Bhagat & Co1 TAXATION IN INDIA. 2 INDEX 1- Overview 2- Corporate Tax Rates 3-...

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