SHANKARLAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI – 400 002.INDIA.
Doing Business in
A Presentation by Mr. Satish Jain
Doing Business in India
INDIA at a Glance
Basic Economic Data
Basic Foreign Direct Investment Data
Direct Tax Residential Status Scope of Tax Tax Rates Capital Gains Deduction / Exemption Available Withholding Tax Double Tax Avoidance Agreement Transfer Pricing Recent Pronouncements
With regard to Foreign Taxation
CONTENTS
Shankarlal Jain & AssociatesChartered Accountants
Doing Business in India
Indirect Tax
Service Tax
Cross Border Transaction
Value Added Tax
Excise Duty
Foreign Direct Investment
Sectoral CAP of Foreign Direct Investment
Conclusion
CONTENTS (Cont…)
Shankarlal Jain & AssociatesChartered Accountants
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INDIA AT A GLANCE
India is a Union of States with parliamentary system of Government
Land area: 3.29 million square kilometers
Capital: New Delhi
Population: 1.21 Billion (2011)
Climate: mainly tropical with temperature ranging from 10 – 40 Celcius in most parts
Time Zone: GMT + 5 1/2 hours
Major International Airports: New Delhi, Mumbai , Chennai , Kolkata ,Bangalore ,
Hyderabad, Thiruvananthapuram
Major Ports of Entry: Chennai, Ennore, Haldia, Jawaharlal Nehru, Kolkata , Kandla ,
Kochi, Mormugao, Mumbai, New Mangalore, Paradip and Tuticorin, Vizag
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INDIA AT A GLANCE (Cont..)
India’s per capita income is US$ 1549.9 in 2011-12, at
current prices, which is higher by 26.68% from the per
capita income in 2010-11.
India can boast of remarkably strong manpower resources
with one of the most developed higher education systems
across the globe.
India’s size of education system ranks third in the world,
after US and China.
The literacy rate in India is 74% in 2011, with English being
understood and used commonly as a medium of spoken
and written communication.
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DEVELOPMENT FOR ALL….
Doing Business in India
INDIA AT A GLANCE (Cont..)
Young, Optimistic, Happy Generation
Developed Markets
Avg Age (Yrs)
UK 40.2
USA 37.1
Spain 40.9
Finland 42.7
France 40.4
Germany 45.3
Sweden 42.2
Emerging Markets
Avg Age (Yrs)
India 26.5
China 35.5
Indonesia 28.5
Pakistan 21.9
Brazil 29.6
Nigeria 17.9
South Africa 25.3
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BASIC ECONOMIC STATISTICS
GDP at current prices(2011-12): US$ 1,859.9 billion
GDP (PPP) 2011: US$ 4,463 billion
GDP Growth Rate 2012: 6.5%
Exchange rate (as on 31ST March, 2012): Rs.51.15/ $
Foreign Exchange Reserves (March 2012): US$ 294.4 billion
Exports 2011-12: US $ 303.7 billion, Growth Rate: 21%
Imports 2011-12: US $ 488.6 billion, Growth Rate: 32.1%
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BASIC ECONOMIC STATISTICS (Cont…)
Finance and Market
During Financial Year 2011-12 (upto 30th December,2011)
Decline in resource mobilization on account of weak Global economic scenario.
The decreasing trend of primary market was also observed in the secondary
market, the indices of India decreased by 20.7% from the previous closing of 2011.
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BASIC ECONOMIC STATISTICS (Cont…)
Doing Business in India
Sources (Funds Mobilized)
2011-12(Upto Dec)
2010-11(Upto Dec)
Equity Public Issues Rs 9,683 Crore(US $ 193.66 M)
Rs 48,654 Crore(US $ 973.08 M)
New IPO’s listed on BSE & NSE & funds raised
30 new companiesRs 5,043 Crore(US $ 100.86 M)
53 new companiesRs35,559 Crore(US $ 711.18 M)
Average IPO size Rs168 Crore(US $ 3.36 M)
Rs 671 Crore(US $ 13.42 M)
Debt Issue Rs 4,791 Crore(US $ 95.82 M)
Rs 9451 Crore(US $ 189.02 M)
Private placement in Corporate Debt
Rs1,88,530 Crore(US $ 3770.6 M)
Rs 2,18,785 Crore(US $ 4375.7 M)
Mutual funds (Upto November) Rs 1,00,338 Crore(US $ 2006.76 M)
Rs 49,406 Crore(US $ 988.12 M)
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Foreign Direct Investment 2011-12: US $ 46.8 billion,
Growth Rate: 34%
India is the fourth destination country for FDI in terms of projects.
India remained very attractive for FDI in 2011. FDI projects
increased by 20% in India in 2011, attracting 932 projects, which
created an estimated 255,416 jobs.
This is despite a global economic growth that had not fully
recovered from the financial crisis of 2008–09 and has begun to
slow again, from over 5% in 2010 down to a projected 3.3% through
2012.
In terms of FDI value, India ranked third, behind China (first) and
Brazil (second) and ahead of the US and UK.
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BASIC FOREIGN DIRECT INVESTMENT STATISTICS
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Rank Countries
Number of Projects Increase/
(Decrease)Value Us$ Million
20112010 2011
1 United States 1,522 1,707 12% 57,275 2 China 1,344 1,409 5% 100,688
3United
Kingdom 941 1,014 8% 36,039
4 India 774 932 20% 58,261
5 Brazil 366 507 39% 63,018
Top Five Recipient Countries by Number of Projects
Top five cities in India attract 42% of the investment projects, 36% of the jobs
created by FDI and 28% of the value of FDI in India.
Bangalore
Mumbai
Chennai
New Delhi
Pune
BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…)
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BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…) FDI by Sector :
Rank
FDI Projects No. of Jobs CreatedValue of FDI
(in Us $ Million)
2010 2011Increase / (Decrease)
2010 2011Increase / (Decrease)
2010 2011Increase/ (Decrease)
Infrastructure 19 36 89.5% 1,8347 22,137 20.7% 2,877.3 3,110.8 8.1%
Automotive 61 78 27.9% 34,109 40,518 18.8% 5,629.5 7,358.0 30.7%
Retail and Consumer Products
68 89 30.9% 30,561 28,478 (6.8%) 4,197.7 2,149.7 (48.8%)
Technology 130 153 17.7% 28,860 41,607 44.2% 4,257.3 6,196.9 45.6%
Financial Services
34 41 20.6% 5,943 8,498 43% 986.2 1,729.7 75.4%
Life Sciences 45 34 (24.4%) 5,379 4,603 (14.4%) 1,184.0 1,822.5 53.9%
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STATUS OF TAXABLE ENTITY Resident of India
I. a. An individual who has been in India for a period amounting to 182 days or more or
b. Within four preceding years have been in India for a period or periods amounting to 365 days or more and for a period of 60 days during the year.
II. A Company is Resident in India in any Previous Year if
a.Indian company or
b.During the year Control and Management of its affairs is situated wholly in India.
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FINANCIAL YEAR Is 1ST APRIL TO 31ST MARCH of each year.
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III. Every other person, is said to be a resident in India in the previous year except
where during that year Control and Management of its affairs is situated wholly
outside India.
Not an Ordinary Resident (NOR)
A person is said to be not an 'Ordinary Resident' in India in any previous year if
such person is an individual who has not been a resident in India in nine out of ten
previous years preceding to that year or has during the 7 previous years
preceding to that year been in India for a period of 729 days or less.
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SCOPE OF TAXABLE INCOME
I. RESIDENT
a. All income as received or deemed to be received in India during the Financial Year.
b. Income accrues or arising or deemed to be accrued or arisen in India during such a year.
c. Accrue or arising to him outside India during such year.
II. NON RESIDENT
a. All income as received or deemed to be received in India in such year or
b. Accrued or arisen or deemed to accrue or arise in India during the year.
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TAXATION CORPORATE TAXES
Domestic Company
Foreign Company
Income Slab Rate of Taxation
Upto Rs 10 Million 30.90%
Above Rs 10 Million 32.45%
Income Slab Rate of Taxation
Upto Rs 10 Million 41.20%
Above Rs 10 Million 42.02%
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PERSONAL TAXES
Income Slab Rate of Taxation
Income between Re 0 - Rs 200,000 NIL
Income between Rs 200,001 - Rs 500,000 10.30%
Income between Rs 500,001 - Rs 1 Million 20.60%
Income above Rs 1 Million 30.90%
NO STATE TAX IS PAYABLE SEPARATELY
LLPs & Firm Taxes are payable at 30.9%.
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CAPITAL GAINS Capital Gains Arises if
Share Listed /Specified Units
Short Term, if holding
period of the
assets is < 12
months
Long Term, if holding
period of the
assets is > 12
months
Share Unlisted
Short Term, if holding
period of the
assets is < 12
months
Long Term, if holding
period of the
assets is > 12
months
All Other Assets
Short Term, if holding
period of the
assets is < 36
months
Long Term, if holding
period of the
assets is > 36
months
Rate of Capital Gain is 15.45%
*Rate of Capital Gain is NIL%
Rate of Capital Gain is 30.90%
Rate of Capital Gain is 20.60% with indexation
** Rate of Capital Gain is 20.60 % with indexation
*If Securities Transaction Tax paid**In Case of Non Resident at 10.30% without indexation
Rate of Capital Gain is 30.90%
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DIVIDEND DISTRIBUTION TAX
A company distributing divided is liable to pay tax @ 15.75% thereon on dividend
distributed.
LOSSES
Business losses are allowed to be carried forward for a period of 8 years and
unabsorbed depreciation is carried forward for unlimited period.
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MINIMUM ALTERNATE TAX (MAT)
If tax payable under normal provision of Income Tax Act is less than 18.5% of the
book profit as disclosed by audited accounts MAT Tax will be payable.
MAT credit will be available for 10 Assessment Years immediately succeeding the
assessment year.
ALTERNATE MINIMUM TAX (AMT)
In case of non-corporate assessees such as LLPs, Partnership firms, individuals,
Association of persons,
It is provided that tax payable will not be lower than 18.5% of the ‘Adjusted Total
Income'. A tax credit for Alternate Minimum Tax is available for a period of 10 years.
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TAX EXEMPTION / INCENTIVES
Sr. No Eligible Business Quantum of Deduction
1. An enterprise produce eligible articles in North Eastern States
100% profit is exempt for 10 consecutive Years
2. Development Special Economic Zone (SEZ)
100% profit is exempt for 10 consecutive assessment Year out of 15 Years
3. SEZ unit engaged in manufacturing of product and services
Profit is exempt 100% for 5 consecutive year, 50% of profit for further 5 years and for next 5 years 50% profit is exempt.
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Sr. No
Eligible Business Quantum of Deduction
4. An enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility. Infrastructure facility implies.(a) A road including toll road, a bridge or a rail system(b) A highway project including housing or other activities
being an integral part of the highway project(c) A water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste management system
(d) A port, airport, inland waterway, inland port or navigational channel in the sea
(e) Operating inland container depot or container freight station duly approved
100% deduction for 10 consecutive years in a block of 15 years
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Sr. No
Eligible Business Quantum of Deduction
5. Income of Venture Capital co. & Capital fund for investment Fully exempt from tax
6. Income of infrastructure debt fund Fully exempt from tax
7. An undertaking is engaged in laying and operating a cross country natural gas or crude or oil pipelines network for distribution chain facility.
100% deduction
8. An undertaking is engaged in developing housing projects in scheme of Slum development approved by Central Government
100% deduction
9. An undertaking is engaged in bee – keeping and production of honey , setting up and operating warehousing facility for storage of sugar and setting up 2 star or upper category of hotels
100% deduction
Shankarlal Jain & AssociatesChartered Accountants
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Sr. No Eligible Business Quantum of Deduction
10. Operating and maintaining a hospital in rural area - The hospital has at least 100 beds for patients
150% deduction
11. Setting up & operating warehousing facility for storage of agricultural produce
Building and operating housing project under scheme for affordable housing framed by Central Government.
Setting up and operating cold chain facility Production of fertilizers
150% deduction
12. Research & Development Expenditure:Expenses incurred on in-house Research &
Development by an industrial undertaking. 200 % on capital Expenditure
Contribution made by a company to National Laboratories, Universities, Indian Institute of Technology or certain specified persons to be used for scientific research undertaken under approved programme
200% on contribution
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Note: Capital subsidy and VAT subsidy by States are given for setting up of industrial units in the respective states by allowing capital subsidy on capital cost of unit and also allowing exemption from payment of VAT or other incentives.
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WITHHOLDING TAX
Description Domestic Company Foreign Company
Dividend NIL Not applicable
Interest 20%
20% - however, in case of a foreign company, interest payable by infrastructure fund is 5% or if borrowings made after 1st July,2012 and before 1st July, 2015 under an approval of loan agreement at 5% when such interest is paid by an Indian company .
Royalty 10% 10%
Fees for Technical Services 10% 10%
Any other services Different Rates 30% in case of non-corporate assessee40% in case of company.
Note: In case a Non-resident does not have an Indian PAN, the tax deductable will not be less than @20.60%
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DOUBLE TAX AVOIDANCE AGREEMENT
India is having DTA with 82 major economies of the world.
The Provision of Indian Income Tax Act or provision of DTA whichever is more
favorable will be used for calculation of tax liability.
For availing benefit of DTA a Non-resident has to submit a Tax Residency
Certificate.
In case where there is no DTA, if an income is taxed in India as well as in a foreign
country credit be allowed for taxes paid in foreign country, not being higher to tax
payable in India.
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TRANSFER PRICING AND ADVANCE PRICING AGREEMENT
Transfer Pricing provisions are applicable:
To International transaction with associated enterprises
Transfer price is to be computed on the basis of one or more methods
prescribed for determining terms of pricing: Comparable Uncontrolled Price (CUP) Resale price method Cost plus method Profit split method Transactional Net Margin Method (TNMM) or any other method as may be prescribed
Advance pricing agreements Methodology of arm's length price be determined. Bilateral or Multilateral agreement.
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GENERAL ANTI AVOIDANCE RULES
Introduced by Finance Bill 2012 but deferred till 2014.
Inpermissible Avoidance arrangements be derecognized.
Inpermissible Avoidance arrangements shall be:
Arrangement to obtain tax benefit which has no commercial substance.
Arrangements create rights or obligations which cannot be
normally created between persons dealing at arm's length
Arrangements which misuses legal provisions
Necessary safeguards provided. General Anti Avoidance Rules are
postponed for time being and a high power expert committee is
being appointed to determine the scope and applicability of the
avoidance rules and methodology of such application.
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Indirect Transfer of Indian Securities
Any capital asset being share or any other interest in a company
or an entity registered or incorporated outside India shall be
deemed to be situated in India, if share of such foreign entity
derives directly or indirectly its substantial value from the assets
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located in India. [The provisions were incorporated by Finance Bill 2012 with
retrospective effect from 01/04/1962].
In case a foreign entity derives its value substantially from assets located in India
by way of shares or otherwise, any transfer of foreign entity shares will have an
effect of transfer of Indian securities and will be liable for capital gain.
By amendment to withholding tax provisions it has been provided that such
foreign entities being transferor will be liable for tax withholding on such capital
gain arising on such transfer.
RECENT PRONOUNCEMENTS WITH REGARD TO FOREIGN TAXATION
Doing Business in India
ROYALTY PAYABLE ON COMPUTER SOFTWARE
Amended with effect from 01/06/1976.
It includes:
any rights to use, a computer software including granting
of license, any disc, tape, perforated media or any other
information, storage device or any customized electronic
data.
TRANSMISSION BY SATELLITE
Amended with effect from 01/06/1976.
It includes:
transmission by satellite including up linking amplification,
conversion for down linking of any signal, cable, optic fiber
by any other similar technology.
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SERVICE TAX
Rate: 12.36% on value of all taxable services.
Taxable Service: All services other than those specified in the negative list
provided in the taxable territory by any person to another.
Service means any activity for consideration (including non-monetary).
Taxable Territory: Service Tax is applicable to the whole of India except state of
Jammu & Kashmir.
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There are 17 services which have been specified in the negative
list, mainly are:
Services provided by Government or Government Agencies
Agriculture
Trading of goods
Process amount to manufacture or production of goods
Selling of time slot for advertisement
Educational
34 specified services are also exempted from services
Point of Taxation
Value of taxable service in case of reverse charge
CENVAT Credit on Capital Goods
Interest on delayed payment @18% Per Annum
NEGATIVE LIST OF SERVICE (EFFECTIVE FROM 01/07/2012)
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CROSS BORDER TRANSACTION
As regards Cross Border Transaction, to determine the place of provision of services
the Law has introduced concept of Import of services & Export of services.
Import of Services
Any taxable service providing to any entity in India will be payable by the Indian
entity utilizing such services.
Export of Services
Any taxable service providing by an Indian entity no Service Tax will be payable
provided payment is received by an Indian entity in foreign exchange.
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VALUE ADDED TAX ACT (VAT)
Value added tax (VAT) is a consumption tax (CT) levied on
any value that is added to a product.
A VAT is a state subject in India and is levied differently by
each state.
Maharashtra VAT (MVAT) laid down as under :
MAHARASHTRA VALUE ADDED TAX ACT (MVAT) Liable to pay tax on the basis of turnover of sales within the state.
It includes:
all persons who buys or sells goods for commission, remuneration or
otherwise.
Does not includes:
Agriculturist, Educational Institutions and Transporters.
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MVAT (Cont…)
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Turnover limit for the purpose of VAT liability
are as under:
Importer - Rs.100,000/-
Others - Rs.500,000/-
Rate of VAT:
Schedules Commodities Rate
Schedule ‘A’ Essential Commodities (Tax free) Nil
Schedule ‘B’ Gold, Silver, Precious Stones, Pearls etc. 1%
Schedule ‘C’ Declared Goods, Industrial Inputs, and such other specified goods 4%
Schedule ‘D’ Foreign Liquor, Country Liquor etc. 20%
Schedule ‘E’ All other goods (not covered by A to D) 12.50%
Doing Business in India
FILING OF RETURN
Every Registered dealer is required to file
return.
Input Tax Credit (ITC) is also available on
purchase of raw materials, finished goods,
packing materials and also available on capital
goods.
AUDIT OF ACCOUNTS
Liable to get its accounts audited if turnover
exceeds to Rs 6 million.
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CENTRAL EXCISE DUTY
All excisable goods which are produced or manufactured in India and the rates
mentioned in first schedule of Excise Tariff Act,1985.
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VALUATION OF GOODS MANUFACTURED
Transaction value.
Assessable value.
Certain specified goods are valued with reference to MRP.
CENVAT credit on raw material and capital goods are also available.
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FOREIGN DRIECT INVESTMENT ROUTE
IN INDIA
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SECTORAL CAP OF FOREIGN DIRECT INVESTMENT
FDI is prohibited in
Lottery business
Gambling & Betting
Chit Funds.
Nidhi Company.
Trading in transferable development rights.
Real estate business or construction of farm house.
Manufacturing of cigar, cigarettes or tobacco or its substitutes.
Activities/sectors not opened to private investment, i.e. atomic
energy, railway transport, other than mass rapid transport
system.
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Sr. No. Sector / Activity
%-ge of FDI Entry Route
1. Agriculture and Animal Husbandry – Activities as prescribed such as flori culture, horticulture, development of seeds, animal husbandry, services related to agro and allied sector – certain conditions prescribed.
100% Automatic
2. Tea plantation – certain conditions prescribed 100% Government
3. Mining 100% Automatic
4. Coal & Lignite 100% Automatic
5. Mining of Titanium – certain conditions prescribed 100% Government
6. Petroleum & Natural Gas:Exploration activities – Infrastructure relating to marketing 100% Automatic
7. Defence industry – subject to industrial licencing – certain conditions prescribed
26% Government
8. Broadcasting – certain conditions prescribed 26% Government
9. Cable network 49% Government
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Sr. No. Sector / Activity %-ge of FDI Entry Route
10. Direct to Home 49% (FDI, NRI & PIO and Portfolio Investment) within this limit FDI component not to exceed 20%
Government
11. Broadcasting Services (HIITS) 74% Automatic upto 49% and balance Government
12.Setting up hardware facilities such as uplink , HUB etc.i) Setting up uplink
HUB/Teleports
ii) Uplink or non news and current affair TV channel
iii) Uplink a news and current affair TV channel - certain conditions prescribed.
49% (FDI & FII)
100%
26% (FDI & FII)
Government
Government
Government
13. Print media 26% Government
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Sr. No Sector / Activity %-ge of
FDI Entry Route
14. Publishing/printing of scientific and technical magazines, speciality journals/periodicals – certain conditions prescribed.
100% Government
15. Airports:i) Green field projects
ii) Existing projects
100%
100%
Automatic.
Automatic upto 74% and balance Govt.
16. Air Transport services 49 % Automatic
17. Helicopter services etc. 100% Automatic
18. Services for civil aviation sector:i) Ground handling services
ii) Maintenance & repair organization, flying training institutes, technical training institutes
74%
100%
Automatic upto49% and balance Govt.
Automatic
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Sr. No Sector / Activity %-ge
of FDI Entry Route
19. Courier services for carrying packages, parcels 100% Government
20. Construction & development of township, housing, built-up infrastructure - certain conditions specified
100% Automatic
21. Industrial Parks 100% Automatic
22. Private security agencies 49% Government
23. Telecom Services 74% Automatic upto 49% and balance Govt.
24. Electronic mail, voice, mail & infrastructure provider – providing duct space, tower – certain conditions applied.
100% Automatic upto 49%and balance Govt.
25. Insurance 26% Automatic
26. Non Banking Financial Companies – only certain activities permitted subject to certain conditions 100% Automatic
27. Pharmaceuticalsi) Greenfield
ii) Existing companies
100%
100%
Automatic
Government
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Sr. No Sector / Activity %-ge
of FDI Entry Route
28. Trade:i) Cash & carry wholesale trading - certain
conditions prescribedii) E-commerce activity iii) Single brand product retain tradingiv) Multi brand product retain tradingv) Asset Reconstruction Cos. (ARC)vi) Private Banking – certain conditions
prescribed. vii) Banking public sectorviii) Commodity Exchangeix) Credit Information companiesx) Stock exchange, depositories clearing
corporations in compliance with SEBI regulations
100%
100%100%51% 49%74%
20%49%*49%49%**
Automatic
AutomaticGovernmentGovernmentGovernmentAutomatic upto 49% and balance Govt. GovernmentGovernmentGovernmentGovernment
*49% (FDI & FII) [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ] **49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital ]
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CONCLUSION
PROS Big Market Growing Per Capita Income Increasing Middle Class Population Tax Rate competitive with other economies High Rate of Literacy & Computer Knowledge
CONS Lack of Infrastructure
(can be looked both ways) Bureaucracy Political uncertainty Fiscal Deficit
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