India Regulatory Brief: New ‘Black Money’ Standards, Changes to Corporate Income Tax

New Indian ‘Black Money’ Standards

In his budget speech on January 28, Finance Minister Arun Jaitley announced legislation aimed squarely at curbing India’s ‘black money’ problem. If approved, penalties will be harsher in India than in many other countries.

Retaining undisclosed income abroad and evading tax on foreign assets could lead to imprisonment for up to ten years.  The penalty for concealing income or assets will be levied at 300 percent of tax and offenders will not be permitted to approach the Settlement Commission.  

Income from undisclosed foreign assets will also be taxed at the maximum margin rate of 30 percent with no exemptions or deductions. Regardless of taxable income, it will be mandatory for the owners and beneficiaries of foreign assets to file tax returns. This is aimed at preventing benami transactions abroad; a form of money laundering in India where properties are bought by a second party in order to hide the real beneficiary.   

Black money has been a longstanding problem in India. The nation ranked third in the world for money illegally moved overseas in 2011, behind China and Russia, according to a 2013 report by Global Financial Integrity.  

Industry body Assocham expressed concern that this new scrutiny should not make tax compliance cumbersome for SMEs or Indian professionals abroad nor should it be left to the discretion of assessing officers. Though the proposals are a bold move, they are unlikely to be implemented in 2015.

RELATED: Tax and Compliance Services from Dezan Shira & Associates 

Corporate and Wealth Tax Changes

Also in his budget speech on January 28, Arun Jaitley announced plans to cut the corporate tax rate and introduce a single national goods & services tax (GST). The changes are intended to stimulate India’s sluggish growth rate, which has dropped from 10.3 percent in 2010 to 5.5 percent in 2014.  

Jaitely is committed to cutting corporate tax to 25 percent over the next four years. It is currently set at 33.99 percent, which is notably higher than Asia’s average corporate tax rate of 21.91 percent in 2014.  

India’s high corporate tax has discouraged foreign investors, while tax excessive exemptions means the effective collection rate is just 23 percent. Jaitley’s reforms should remedy these issues by optimizing taxation yield.  

The GST will also replace the complex system of local duties and should be introduced by April 1, 2016. It will streamline the current system, simplifying the process for tax collectors and businesses alike.

India Poised to Increase Infrastructure Investment

On February 26, the Indian government announced plans to invest US$137 billion in the country’s outdated rail network. To be implemented over the next five years, the plan will see investment increase by approximately half in 2015, raising the overall amount to US$16.15 billion.

Updating India’s railways is an essential part of the incumbent BJP party’s plans to improve India’s infrastructure. Last year, the government raised the foreign direct investment (FDI) cap in the sector from 0 percent to 100 percent, signaling a massive change in direction in how India’s rail networks will be developed.

Despite having the world’s fourth largest rail network, the development of India’s railways has lagged behind that of other large economies, particular its neighbor China, which now has more than six times as much track. In a statement, Railway Minister Suresh Prabhu said that India’s railways “have to undergo a transformation” and that the new budget will “set the direction of a long and difficult road of reform”.

RELATED: Navigating India’s Goods & Services Tax

Gujarat to Implement new Labor Laws Bill

The Gujarat government has taken steps to decrease the disruption from labor disputes by passing the Gujarat Labor Laws Bill 2015. The amendment bill will alter the way wages must be paid to employees, making it compulsory for businesses with over 20 employees to pay wages in cheque instead of in cash. In order to prevent strikes in public utility services, the time limit for workers to raise objections to has been reduced to one year. In addition, strikes in public utility services may be prohibited for one year instead of the previous six months.      

Establishing Your Sourcing Platform in India
In this issue of India Briefing, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.

Passage to India: Selling to India’s Consumer Market
In this issue of India Briefing Magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures.

• Previous Article Setting Up a Wholly Foreign-Owned Subsidiary Company in India
• Next Article India’s FY 2015-16 Budget: Meaning and Implications for Foreign Investment