Indian economy has grown multifold and is one of the fastest-growing major economies of the world. India enjoys macroeconomic stability and has developed Investors’ confidence due to continues efforts towards transparency in governance, liberalisation of foreign direct investment (FDI) norms, easing the cost of doing business, stability and predictability in tax decisions, reforms in the taxation etc.. This article is a synopsis on Taxation for Companies in India (Indian and Foreign Entities) for doing business.
Taxation in India
Tax is India is broadly divided into two types, they are Direct Taxes and Indirect Tax. Direct Taxes is levied on income of Individual and Corporate Entity and Indirect Taxes are levied on Sale and Provision of Good and Services. Taxes are imposed by Central and State Government. Some minor taxes are paid to the local municipal corporation.
Major Central Taxes
Following are the taxes imposed by Central Government:
- Income Tax (Income through Salary / Capital Gain through sale of property / Profit from Business and Profession and other Income)
- Customs duties ( Import and Export of goods)
- Central Good & Service tax (Taxes on provision of services and supply of goods)
- Central excise (Alcohol for human consumption and Petroleum products)
Major State Taxes
Following are the taxes imposed by State Government:
- Stamp Duty and Registration (Imposed on the property transaction of sale / purchase / lease / conveyance deed etc.)
- Property Tax.
- State Good & Service tax (Taxes on provision of services and supply of goods)
- Value Added Tax (Alcohol for human consumption and Petroleum products)
In this article we shall confine ourself to Taxation for Companies in India i.e. Income Tax (Direct Tax) and Goods & Service Tax (Indirect Tax) which is levied by the Indian Government.
Direct Tax (Income Tax)
As mentioned the tax structure in India is divided into two types direct and indirect. Income Tax is the direct tax which is levied on the income entered by an individual and a business entity in a financial year. The tax rates are different for both. Therefore, Direct Tax is subdivided for Individual and Corporate.
Income Tax for Individual: This tax is paid by the taxpayers other than companies registered under company law in India on the income earned by them. They are taxed on the basis of income slab at different rates.
Income Tax for Corporates: This tax is paid by the companies registered under company law in India on the net profit that is earned from businesses. It is taxed at a specific rate as prescribed by the income tax act subject to the changes in the rates every year by the Income Tax department. Domestic (registered under the Companies Act of India and the foreign countries having control and management wholly situated in India) and foreign companies ( not registered under the companies act of India) are liable to pay corporate tax under the Income-tax Act. Domestic company is taxed on its universal income, a foreign company is only taxed on the income earned within India i.e. is being accrued or received only in India.
The Company earns income in varied ways as under:-
- Profits earned from the business.
- Capital Gains.
- Income from renting property.
- Income from other sources like dividend, interest etc.
- The income from Royalty
Tax Rates for S.N. 1 to 4 are as under:-
Taxes Rate are 25% in case of total turnover or gross receipt of the company registered in India does not exceed Rs. 400 crore and for all others 30%.
Tax Rates for S.N. 5 are as under:-
Depending on the nature of Income the tax rate for foreign company on Royalty received or fees for technical services from government or any Indian concern under an agreement
Surcharge & Cess on Income:
|Company||Net income is between
Rs. 1Cr. – 10 Cr.
| Net income exceeds
2. Health and Education Cess : @4% of income tax plus surcharge.
3. Minimum Alternate Tax (MAT) : All Companies whether Indian or Foreign (except companies engaged in infrastructure and power) which show zero or negligible income to avoid tax are required to pay MAT at the rate of 18.5 % (plus surcharge and cess as applicable)
GST (Goods and Service Tax) is a comprehensive indirect tax levied on manufacture, sale and consumption of good and services. India has dual GST model in which both the Central and State levy taxes. Depending on the category of goods and services, tax rate has 5 slabs (0%, 5%, 12%, 18%, 28%). Monthly, Quarterly and Annual returns are required to be submitted online through GST Portal. The annual return has to be filed by 30th September. The companies having turnover less than 5 Crores are exempted from GST audit.
Taxation for Foreign Entity
Tax liability varies with the type of organization/entity. Below is the specification of tax liability for the Foreign Entities who are doing business in India.
Liaison Office : As Liaison performs is merely a networking channel between the parent company and India, they are not allowed to conduct business activity and earn profit therefore there is no Tax liability on it. But it is mandatory to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN), required to file an annual statement of its financial affairs and an annual activity certificate (AAC). No repatriation taxes are applicable even an unutilized funds available at the time of its closure, can be repatriated without any exit taxes.
Project Office/Branch Office : Due to business operations in India with the intend to earn profit, it is taxable in respect of its earned Indian profits @ 40% plus applicable surcharge and cess. It is mandatory to obtain a PAN and TAN, file an annual return of income and an annual activity certificate. Repatriations of surplus or at the time of closure of PO / BO are not liable to any additional taxes.
Limited Liability Partnership : The entity is treated as a tax resident of India and is liable to pay @30% surcharge and cess as applicable. It is mandatory to obtain a PAN and TAN, and file an annual return of income. When LLP distributes its profits to partners, they are not taxed in the hands of the LLP or its partners. Repatriation of capital contribution (upon dissolution) is permissible without any thresholds and is not subject to any additional taxes.
Company formed in India (Wholly-owned subsidiary/ Joint Venture) : A company incorporated in India is treated as a tax resident of India and is taxed @ 30% plus surcharge and cess on its income. However, if its turnover is up to INR 4,000 mn, then the applicable rate of tax is 25% surcharge and cess as applicable. It is required to obtain a PAN and TAN, and file an annual return of income. Profit repatriation by way of a dividend is subject to Dividend Distribution Tax (DDT) in the hands of the company @ 20.36% of dividend declared.
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ASCC with its team of highly skilled specialists provides strategic and operational support for doing business in India. The strategic support includes selection of site for setting up the industry (Acquisition of Leasehold Industrial Land under Priority Allotment (FDI), allotment through e-bidding, Resale Industrial land) and all legal property transfer formalities, and operation support includes support for obtaining all requisite consents, NOCs, permissions and licenses to establish and run the industry. For detailed profile of ASCC please Click here.
Direct Allotment of Land through MIDC under Priority Allotment:
- Providing you the complete information for decision making at your end for selection of location and site.
- Arranging site visit
- Guidance for preparation and submission of project report and application to MIDC.
- Case representation to MIDC.
- Guidance for Meeting with MIDC
- Liaison with MIDC for issuance of Offer Letter and Allotment Order.
- Arranging Survey, Demarcation and Possession of Land.
- Full assistance for execution of Agreement to lease with MIDC
- Monitoring entire allotment and transfer process.
- Any other service needed by you for procurement and transfer of Industrial land
Procurement of Industrial Land in Resale:
- Selection of Location
- Offering Industrial Properties through the database.
- Short listing and site visit.
- Meeting with the seller.
- Negotiation to decide the terms.
- Due Diligence and Title Verification.
- Structuring of the deal.
- Preparation and finalization of MoU.
- Handling entire Transfer Process.
- Any other services needed for procurement of Industrial land
Other Industrial Services by ASCC:
- In-depth study for selection of location
- Guidance for approval of RBI / Government for Funds Transfer
- All Business and Industrial approval
- Registration of MSME & LSI
- All other registration for
- MPCB Consent to Establish and Operate
- Factory Plan Approval and License from DISH
- Petroleum and Explosives License (HSD and other Class A, B, C Petroleum Products, Chemicals, Gas Cylinder Rules for Canteen/Cafeteria.)
- Contract Labour License as Principal Employer / Site Registration
- MIDC – Approvals:
- Building Plan Approval
- Provisional and Final Fire NOC
- Building Completion Certificate, Occupancy Certificate
- Any other permission & licenses to establish & run the industry
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Ascent Supply Chain Consultants Pvt.Ltd.
406, Raheja Arcade,
Sector 11, CBD Belapur,
Navi Mumbai -400614
E-Mail : email@example.com