India

Basic taxes (briefly)

Personal tax 5-30%
Corporate tax (in detail) At the base rate of 22%, the effective rate, taking into account the additional tax and levies on medicine and education, will be 25.17%.
Capital gains tax. Details
VAT. Details Goods and Services Tax (GST) - similar to VAT. The tax is levied at the federal and state levels. Tax rates, as a rule, vary between 5% and 28%, the main rate is 18%
Other taxes Social Contributions, Securities Tax, Property Tax
Government fee
Stamp duty уплачивается при сделках с имуществом

International tax agreement

   


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TAXATION

General Info

India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax. Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax are levied by the State Governments. Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.
At present, the process of rationalization of tax administration is ongoing in India.

Personal Income Tax

Personal income tax in India is taxed on the worldwide income of resident individuals, and on India- source income of non-residents. An individual is resident in India if he/she spends at least 182 days in the country in a given year, or 60 days if the individual has spent at least 365 days in India in the preceding four years.
Income from employment, including most employment benefits, is fully taxable.
Personal income tax is levied at progressive rates:
Income, INR Rate
0 - 200,000 0%
200,001 - 500,000 10%
500,001 – 1,000,000 20%
over 1,000,000 30%

The education cess of 3% is added to the above rates. Besides, these rates are applicable for individuals below 60, for those idividual who are older than 60 and 80 lower rates are applicable.
Tax year is from 1 April to 31 March. The employer withholds tax on salary income. All individual taxpayers are required to file an individual tax return. Individuals must prepay 100% of the final tax due by the end of the fiscal year either via withholding at source or by making advance payments (with interest payable on underpayments). Returns are due by 31 July of the assessment year. Penalties apply for failure to file a return, failure to comply with withholding tax obligations and concealment of income.

Corporate tax

Corporate income tax is levied on the worldwide income of resident companies and only on India-source income of nonresident companies.
Corporation tax is imposed on a company’s profits, which consist of business/trading income, passive income and capital gains. Income resulting from the indirect transfer of assets located in India is included. Normal business expenses, as well as other specified items, may be deducted in computing taxable income.
The rate is 30% for domestic companies and 40% for foreign companies and branches of foreign companies. Taking into account the surtax and cess, the highest effective rate is 32.445% for domestic companies and 42.024% for foreign companies.

Surtax

In India a 5% surcharge applies to domestic companies if income exceeds INR 10 million. For foreign companies a surtax is 2%.

Alternative minimum tax

A Minimum Alternate Tax (MAT) is imposed at 18.5% (plus any applicable surcharge and cess) on the adjusted book profits of corporations whose tax liability is less than 18.5% of their book profits.

Capital gains tax

The tax treatment depends on whether the gains are long or short term. Gains are long term if the asset is held for more than three years (one year in the case of shares and specified securities). Long- term gains on listed shares and specified securities are exempt if the transaction is subject to the Securities Transaction Tax (STT). Where such gains are not subject to the STT, a 10% tax applies.
As from financial year 2012-2013, the applicable tax rate on long-term capital gains derived by a nonresident from the sale of unlisted securities is 10%. Gains on other long-term assets are taxed at 20%. Short-term gains on listed shares and specified securities, which are subject to the STT, are taxed at 15%, and gains from other short-term assets are taxed at the normal tax rates. A surcharge and cess also are imposed.

Losses

Business losses and capital losses may be carried forward for eight years, with short-term losses offsetting capital gains on both long and short-term assets, and long- term losses offsetting only long-term gains. Other than unabsorbed depreciation (which may be carried forward indefinitely), losses may be carried forward only if the tax return is filed by the due date. Unabsorbed depreciation may be offset against any income whereas business losses may be offset only against business profits.

Dividends

Dividends paid by a domestic company are subject to the Dividend Distribution Tax (DDT) at an effective rate of 16.22%. Dividends subject to DDT are exempt from tax in the hands of the recipient. Dividends received from a foreign company are subject to corporation tax. For financial year 2012-2013, dividends received by an Indian company from specified foreign companies (companies in which the Indian company holds 26% or more of equity shares) is subject to tax at a reduced base rate of 15%. A surcharge and cess also are imposed.

Incentives

A deduction is available (up to 200%) in respect of capital and revenue expenditure on scientific research conducted in-house by specified industries and for payments made to specified organizations for scientific research.
As from financial year 2012-2013, a deduction of 150% of expenditure incurred on a notified agricultural extension project or skill development project is available.
Undertakings set up in special economic zones are exempt from tax on their export profits subject to compliance with other conditions.

Tax year

The standard tax year runs from 1 April to the following 31 March.

VAT

Value added tax (VAT) is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer.
Sales involving the movement of goods from one state to another are governed by the Central Sales Tax (CST) . Services are subject to Service Tax.
The VAT rate has two components: a general rate of 4% to 5% and a residual rate of 12% to 15% that varies from state to state. The CST rate is 2% against the submission of specified forms or the applicable local VAT rate. Service tax is payable at 12.36%, including the education cess and the secondary and higher education cess on the provision of specified taxable services in India.

VAT Registration

An Indian company is required to register for VAT if its turnover is INR 500,000, although this may vary by state.
State VAT laws also specify monetary amounts of sales and/or purchases required for registration.

VAT tax period and returns

VAT returns must be filed and payments made monthly or quarterly, based on the tax liability.

Withholding tax

Withholding tax rate depends on a type of income paid to a non-resident:
Type of Income Rate Details
Dividends - are not subject to withholding tax, but subject to dividends distribution tax at an effective rate of 16.22%
Interest 20% + the applicable surcharge and cess; the rate may be reduced under a tax treaty
Royalties 10% + the applicable surcharge and cess; the rate may be reduced under a tax treaty
Technical Service Fees 10% + the applicable surcharge and cess; the rate may be reduced under a tax treaty

If the nonresident does not have a PAN, tax must be withheld at the applicable rate or 20%, whichever is higher.

Stamp duty

Stamp duty – Financial instruments, real property and other specified transactions in India attract stamp duties that are levied under the Indian Stamp Act and the stamp acts of the various states
The rates vary from 0.5% to 7% depending on state.

Government fee

Every Indian company has to file an annual report and financial statements with the government for which government charges are INR 500 per document.

Other taxes and duties

Excise duty levied on the manufacture of excisable goods in India. The peak rate of central excise duty, including the education cess and the secondary and higher education cess is 12.36%.
Social security contribution the employer generally contributes 12% of eligible wages per month to the Provident Fund; the employee contributes 10%-12% of wages per month.
Wealth Tax levied at rate of 1% on the aggregate value exceeding INR 3 million of nonproductive assets such as land; buildings not used as factories; commercial property not used for a business or a profession; offices or residential accommodation for employees earning over INR 500,000 per annum; certain precious metals; and cars, aircraft and yachts.

Anti-avoidance rules

Transfer pricing: The transfer pricing regime is influenced by OECD norms, although the penalty provisions in India are stringent compared to those in other countries. The definition of associated enterprise extends beyond a shareholding or management relationship. The taxpayer is required to maintain certain information and documents and provide a certificate (in a prescribed format) from a practicing chartered accountant that sets out the details of associated enterprises, international transactions, etc., along with the methods used to determine an arm’s length price. The certificate must be submitted by the due date for filing the annual tax return for companies required to submit such a certificate, i.e. 30 November. Where the application of the arm’s length price would reduce the income chargeable to tax in India or increase a loss, no adjustment will be made to the income or loss. If a transfer pricing adjustment is made on a taxpayer that benefits from a tax holiday, the benefit will be denied to the extent of the adjustment. As from financial year 2012-2013, the scope of the transfer pricing provisions is extended to cover “specified domestic transactions” if the aggregate value of the transaction exceeds INR 50 million in a year. Specified domestic transactions include payments to related parties, the inter-unit transfer of goods or services. The pricing of these transactions must be determined with regard to arm’s length principles using methods prescribed under India’s transfer pricing rules.
Thin capitalization: No
Controlled foreign companies: No
Disclosure requirements: A nonresident with a liaison office in India is required to prepare a report on its activities and submit it to the Indian tax officer within 60 days from the end of the financial year.
Other: To discourage transactions with persons located in jurisdictions that do not effectively exchange information with India, the government will designate such jurisdictions, with the effect that transactions with persons situated in those jurisdictions will be subject to the Indian transfer pricing rules and income paid to persons in the designated jurisdiction will be subject to a minimum withholding tax of 30%.

Double Tax Agreements

India signed tax agreements with 117 countries:
98 DTCs: Afghanistan, Albania, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Bhutan, Botswana, Brazil, Bulgaria, Canada, China, Chinese Taipei, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Faroe Islands, Fiji, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Libya, Lithuania, Luxembourg, Malaysia, Maldives, Malta, Mauritius, Mexico, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Tanzania, Thailand, Trinidad and Tobago, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet nam, Zambia.
20 TIEAs: Argentina, Bahamas, Bahrain, Belize, Bermuda, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Macao (China), Maldives, Marshall Islands, Monaco, Saint Kitts and Nevis, San Marino, Seychelles, Virgin Islands (British).

Foreign exchange control

There is a simplified regulatory regime for foreign exchange transactions and liberalized capital account transactions. Current account transactions are fully permitted unless specifically prohibited. The central bank monitors capital account transactions. Full foreign investment is permitted in most industries, while sector-specific caps have been set for foreign investment in certain industries, such as basic and cellular telecommunications services, banking, insurance and retail trade.

ACCOUNTS

Accounting records

Every company shall prepare and keep at its registered office books of account. All or any of the books of account may be kept at other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place. The company may keep such books of account or other relevant papers in electronic mode.
Books of account should be kept according to the standards issued by the Institute of Chartered Accountants of India which are largely based on IAS. The books shall maintain records of the following:
  • all sums of money received and expended and the matters in respect of which the receipt and expenditure take place;
  • all sales and purchases of goods by the company;
  • the assets and liabilities of the company;
  • in case of companies engaged in manufacturing, processing, mining etc, such particulars relating to utilization of material or labor or other items of cost.

The books of account relating to eight years immediately preceding the current year together with supporting vouchers are required to be preserved in good order.
In case of violation of the above, the responsible person shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.

Financial statements

All Indian companies must prepare financial statements annually. The first annual accounts of a newly incorporated company should be drawn from the date of its incorporation up to the day not preceding the AGM date by more than 9 months. Thereafter Annual Accounts for the period ending with the day, not preceding the AGM by more than 6 months, have to be placed in the said AGM.
Companies are required to file the Annual Accounts with the Office of the concerned Registrar of Companies within 30 days from their AGM or where the AGM is not held, then within 30 days of the last date on which the AGM was required to be held.
The accounts of the company must relate to a financial year (comprising of 12 months) but must not exceed 15 months. The company can obtain prior permission from the ROC for an extension of the accounting period to the extent of 18 months.
In case of a Private limited company balance sheet is publicly accessible, but statement of profit and losses is not.

Audit

The auditors’ report shall be attached to every financial statement.
At each AGM, every company must appoint auditor or auditors who should be chartered accountants. Such auditors are to hold office from the conclusion of that meeting until the conclusion of the next AGM.
Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.


Every Indian company having a share capital is required to file an annual return with the ROC within 60 days from the date on which the AGM of the company was held or where the AGM is not held, then within 60 days of the last date on which the AGM was required to be held. The return is to be duly signed digitally and the requisite certificates to be attached.
The annual return should contain the following particulars:
  • registered office, principal business activities, particulars of company's holding, subsidiary and associate companies;
  • shares, debentures and other securities and shareholding pattern;
  • indebtedness;
  • members and debenture-holders along with changes therein since the close of the previous financial year;
  • promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
  • meetings of members or a class thereof, Board and its various committees along with attendance details;
  • remuneration of directors and key managerial personnel;
  • penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
  • matters relating to certification of compliances, disclosures as may be prescribed;
  • details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
  • such other matters as may be prescribed, and signed by a director and the company secretary.

Companies with a Paid-up capital between INR 1million and INR 20 Million are required to file an annual compliance Certificate from a Company Secretary in whole time within 30 days from the date of annual general meeting, along with the Annual Report.
If a company fails to file its annual return before the expiry of the period, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Annual return is publicly accessible.

Tax returns

The tax year is the fiscal year (1 April to 31 March).
Taxes on income in a fiscal year usually are paid in the next fiscal year (“assessment” year). Companies must submit a final return by 30 September (30 November for companies required to file a certificate on international transactions) of the assessment year, stating income, expenses, taxes paid and taxes due for the preceding tax year.
Companies must make foru advance payments of their income tax liabilities during the accounting year on:
  • 15 June - 15% of total tax payable
  • 15 September - 45% of total tax payable
  • 15 December - 75% of total tax payable
  • 15 March - 100% of total tax payable

Penalties apply for failure to file a return and certificate of international transactions, failure to comply with withholding tax obligations and concealment of income.

    Taxes of India

    Min. rate for corporate tax 25,17%
    Capital gains tax Regular rate
    VAT 18%
    Withholding tax 20%/20%/10%
    Exchange control Yes
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