India Regulatory Brief: Tax Collection to Widen in Tier-II Cities, Company Registrations on Decline

Posted by Reading Time: 4 minutes

Regulatory brief logo

I-T Expanding Tax Collection Efforts in Tier-II Cities

The Income Tax Department plans to expand its tax collection activities in Tier II cities, such as Jaipur in Rajasthan state, Indore in Madhya Pradesh state and Vishakhapatnam in Andhra Pradesh state. The initiative follows a directive from the federal government to increase the number of taxpayers in the country by 2.5 million individuals and entities every month.

The Central Board of Direct Taxes (CBDT), the Income Tax Department’s administrative and policymaking body, found that the gap between the actual number of taxpayers and potential number of taxpayers was widest in the country’s rapidly growing Tier-II cities. Income Tax and CBDT officials quoted in the media report that authorities will not use adversarial or intrusive measures to expand tax collection.

Company Registrations on Decline

The number of new company registrations declined during the 2014-15 financial year, according to Ministry of Corporate Affairs (MCA) data. The 64,000 companies registered during 2014-15 marks a 35 percent drop from the 98,029 companies that registered during the 2013-14 financial year. While the number of companies that registered as limited liability partnerships (LLPs) in 2014-15 increased by 55 percent from the previous financial year, the number of public and private company registrations dropped by 52 percent and 33 percent, respectively, contributing to the lowest number of company registrations since 2009-10.

The lower start-up costs and number of compliances for LLPs in comparison to private companies may in part explain the increase in the number of LLPs. Many local observers have blamed the Companies Act, 2013 for the decline in company registrations. In their view, the Companies Act drastically increased the number of compliance requirements for companies, while the associated liabilities for companies also increased. However, the decline in the number of company registrations in the past six years may mirror the economic slowdown India experienced since 2009-10, when company registrations initially began to decline.

Professional Service_CB icons_2015RELATED: Tax and Compliance Services from Dezan Shira & Associates 
New Insolvency Body Forthcoming

The Supreme Court upheld the constitutionality of the National Company Law Tribunal (NCLT), which will replace the Company Law Board and the Board for Industrial and Financial Reconstruction. The Supreme Court subsequently requested the federal government to make several amendments to the Companies Act, 2013 that will operationalize the NCLT. The NCLT, a quasi-judicial body, will govern companies in the country and oversee corporate insolvencies. The NCLT will also serve as the main component of a new bankruptcy code. Government officials expect the NCLT to improve India’s ranking in the Doing Business Report published by the World Bank.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email or visit

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.


Related Reading-IB

IB Nov issue smallEstablishing 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.

An Introduction to Doing Business in India 2015 (Second Edition)
Doing Business in India 2015 is designed to introduce the fundamentals of investing in India. As such, this comprehensive guide is ideal not only for businesses looking to enter the Indian market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes. We discuss a range of pertinent issues for foreign businesses, including India’s most recent FDI caps and restrictions, the key taxes applicable to foreign companies, how to conduct a successful audit, and the procedures for obtaining an employment visa.