Tax Treatment in India

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In this article, we highlight several key tax rates in India, including the corporate income tax, the withholding tax and the value-added tax rate. We also outline several points of interest relating to the tax treatment of these items.

Corporate Income Tax

  • Rate: 30 percent for Indian companies, and 40 percent for foreign companies
  • Residency: Companies are considered to be residents if they are incorporated in India, or if during any fiscal year the control and management of the company’s affairs were wholly situated in India.
  • Compliance: The assessment system consists of Self-Assessment, Regular Scrutiny/Assessment, Best Judgment Assessment, and Income Escaping Assessment. Filing due dates are November 30 if the company has international transactions, or September 30 for all other companies.
  • Incentives: 100 percent deductions are available to Indian companies for capital expenditures on R&D related to the business, and weighted deductions of 200 percent of capital and revenue expenditures are available to Indian companies incurring expenditure on scientific research at approved in-house R&D facilities. Indian law also provides tax holidays, exemption periods, and other incentives for enterprises in areas subject to specified conditions. Tax incentives may also be available in the oil and gas, shipping, aircraft, power industry, and others for nonresident companies.

Indirect Tax

  • Rate: The standard VAT rate is 12.5 percent, while rates and exemptions vary between states. The standard CST rate is 2 percent, and the standard rate of service tax is 12 percent, plus a cess of 3 percent.
  • Other: Efforts are currently under way to introduce a comprehensive goods and services tax in order to replace the VAT and service tax.

Individual Income Tax

  • Rate: Up to 30 percent
  • Other: Education tax of 3 percent is applicable, and both the employer and employee are required to make contributions to the Provident Fund at 12 percent of the prescribed salary.

This article is an excerpt from the November and December issue of Asia Briefing Magazine, title “The 2014 Asia Tax Comparator.” In this issue of Asia Briefing Magazine, we examine the different tax rates in 13 Asian jurisdictions – the 10 countries of ASEAN, plus China, India and Hong Kong. We examine the on-the-ground tax rates that each of these countries levy, including corporate income tax, individual income tax, indirect tax and withholding tax. We also examine residency triggers, as well as available tax incentives for the foreign investor and important compliance issues.

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