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  • TAXATION OVERVIEW IN INDIA

    India’s tax structure is divided into direct and indirect.

  • Direct tax is levied on an individual. In this case, the burden of the tax cannot be shifted. This type of tax is charged on taxable income earned by the individuals and corporate entities. Indirect tax on the other hand is paid for by the end-consumer of goods and services. Here, the burden of the tax can be shifted.

    In India, taxes are mainly levied by the Central Government and the State Government. Apart from these, some minor taxes are also charged by local authorities like the Municipality and the Local Governments.

    Major Central Taxes

    Major State Taxes

  • Major Tax Reform in India

  • GST is one of the biggest indirect tax reforms in the Country.

    GST has replaced all indirect taxes that were previously levied on goods and services by the Central and State Governments. The GST is a comprehensive indirect tax charged on manufacture, sale, and consumptions of goods and services at the national level.

    This tax was implemented on 1st July 2017. A dual GST model was adopted by the country in which both the Centre and State levy taxes.

    Collected by state Government

    State GST

    SGST

    Collected by Central
    Government

    Central GST

    CGST

    INTIGRATED GST

    IGST

    Note: The GST is applicable on all goods other than following:

    • Alcoholic liquor for human consumption
    • Five petroleum products (Petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel). GST on these to be levied post notification about the effective date.


    Benefits of GST

    Minimal physical interface

    Compliance cost reduced due to the unification of Indirect taxes

    Check over tax-evasion through a robust IT-based administration

    Unified tax-regime for both goods and services

    No cascading of taxes

    GST registration
    • Already registered under previous Acts such as VAT, Excise, etc.
    • Aggregate annual turnover exceeds INR 40 lakhs
    • Aggregate annual turnover exceeds INR 20 lakhs (for Jammu & Kashmir, Himachal Pradesh, Uttarakhand and North-Eastern States)
    • Businesses specified under the GST Act (irrespective of the above-stated conditions)
    • Importer/ Exporter
    GST RATES
    • 0%

      • 50% of consumer price baskets including food grains
    • 05%

      • Mass consumption items like spices and mustard oil
    • 12%

      • Processed foods
    • 18%

      • Refrigerator
      • Soap
      • Oil
      • Smartphones
      • AC Restaurants
    • 28%

      • Luxury goods
      • Tobacco
      • Cigarettes
      • Hotel services

  • Taxability in India

  • Tax incidence of an individual depends upon his residential status, which is defined on the basis of his physical presence in India as per the Income Tax Act.

    Tax incidence of a company depends on the residential status of the company,i.e., whether the company has been incorporated in India or its place of effective management lies in India.

    Tax incidence of a Limited Liability Partnership (LLP) depends on the residential status of the LLP,i.e., whether the control and management of its affairs are situated wholly or partially in India.

  • Taxation on Foreign Entities

    • A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
    • It is required to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN).
    • It is required to file an annual statement of its financial affairs and an annual activity certificate (AAC).
    • As an LO cannot generally earn any profits, no repatriation taxes are applicable. Even if there are any unutilized funds available at the time of its closure, they can be repatriated without any exit taxes.
    • A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
    • It is required to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN).
    • It is required to file an annual statement of its financial affairs and an annual activity certificate (AAC).
    • As an LO cannot generally earn any profits, no repatriation taxes are applicable. Even if there are any unutilized funds available at the time of its closure, they can be repatriated without any exit taxes.
    • A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
    • It is required to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN).
    • It is required to file an annual statement of its financial affairs and an annual activity certificate (AAC).
    • As an LO cannot generally earn any profits, no repatriation taxes are applicable. Even if there are any unutilized funds available at the time of its closure, they can be repatriated without any exit taxes.
    • A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
    • It is required to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN).
    • It is required to file an annual statement of its financial affairs and an annual activity certificate (AAC).
    • As an LO cannot generally earn any profits, no repatriation taxes are applicable. Even if there are any unutilized funds available at the time of its closure, they can be repatriated without any exit taxes.

  • KEY TAX INCENTIVES IN INDIA

  • Export Promotion

    • Applicability:SEZ units operational before 1st April 2020
    • Incentive: Deduction of 100% of profits and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years.

    Research & Development

    • Applicability:Companies in respect of any expenditure on R&D in an approved in-house facility
    • Incentive: Weighted tax deduction of 200% granted to companies
    • Validity: 31st March 2020

    Investment-linked

    • Incentive: To incentivise investment in certain sectors, any capital expenditure incurred for specified businesses is allowed as a deduction in the year in which it is incurred.

    Startup India Scheme

    • Incentive: Tax incentives granted to eligible start-ups are the tax holiday for any consecutive 3 years (from initial 5 years) in respect to 100% of their profits, including fast-tracking of patent applications with 80% rebate.

    International Financial Services Centre

    • Applicability:Caters to customers outside the jurisdiction of the domesticeconomy. Such centres deal with flows of finance, financial products and services across borders.
    • Incentive: Tax concessions on capital gains, Minimum Alternate Tax and Divident Distribution Tax

  • Tax Compliances & Dispute Resolution

  • Tax compliances: Every taxpayer is required to undertake certain compliances, such as:

    Note: Note: In certain cases, the return of income filed by a taxpayer is subject to verification or audit by tax authorities. This process is called an ‘assessment’. In case a taxpayer is aggrieved by the outcome of the assessment, he/she can challenge the same before the dispute resolution authorities.

  • KEY TAX INCENTIVES IN INDIA

  • Tax compliances: Every taxpayer is required to undertake certain compliances, such as:

    • Double Taxation Avoidance Agreement (DTAA)

      Signed b/w India and another country so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.

    • Monthly deposition of withholding taxes

      All employees are required to contribute towards statutory social security contribution funds. Withdrawal from such funds is possible at the time of termination of employment.

      • To exempt international workers from the contributing towards Indian social security funds, India has entered into Social SecurityAgreements (SSA) and Bilateral Comprehensive Economic Agreements (BCEA) with various countries.
      • As a result, inbound assignees from countries that have entered into an SSA with India and hold a Certificate of Coverage (COC) issued by their home-country can claim exemption from Indian social security contributions.

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