doing business in india- a business guide

8/3/2019 Doing Business in India- A Business Guide

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A COMPLETE BUSINESS GUIDE


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************ DOINGDOINGDOINGDOING BUSINESSBUSINESSBUSINESSBUSINESS ININININ INDIAINDIAINDIAINDIA ************

CONTENTS

An overview of India 5Brief economic profile 5Recent trends in economic growth 6Official language 8Laws Existing 8Country fact file 8

Starting Business in India 10Incorporating a Company 10

Options Available for Exit from the Business 10Drawing up an agreement 11

Types of Companies & Company Law 12Share capital 14Management 15Audit of accounts 16Summary OfSteps Involved In Forming a Public Company 17

Foreign Direct Investment (FDI) Policy 18

Procedure under normal route 18Procedure under Government Approval 19

Regulatory Framework on Investment in India 20Automatic route 20Government approval route 20Investment by way of acquisition of shares 21New investment by an existing collaborator in India 22Portfolio investment in India 22

Policy on FII investment 23

Investment Vehicles for Foreign Investors 25Choice of vehicle 25

Taxation in India 27Taxes Levied by Central Government 28


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Taxes Levied by State Governments and Local Bodies 32

Transfer Pricing 34Determination of arms length price 35Burdon of proof & assessment 35

Labor Rules & Regulations 37Payment of Bonus Act, 1965 37Employees provident fund & Miscellaneous provisionsAct, 1952 38Payment of Gratuity Act, 1972 38The Employees State Insurance Act, 1948 39Contract labor (Regulation and Abolition) Act, 1970 39Shops and establishment Act 40Working hours 40Wages and Benefit 40Other Benefits 41Termination of Employment 41Labor-Management Relations 42Employment of foreigners 43

Intellectual Property 45

Foreign Exchange Regulations & Repatriations 46Foreign Exchange Management Act (FEMA) 46Repatriation of foreign exchange 46Dividends 47Royalty payments under technical collaboration 47Consultancy services 48Import of goods 48Repatriation of capital 49Netting 49Other remittances 49

Visa and Entry Requirements 50

Incentives offered 53


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Statistical Information 55Economic Survey 2007-08 55

Indias foreign trade: April, 2008 55Country wise Export 55Country wise import 62

Map of India 70


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AN OVERVIEW OF INDIA

India, being the 7th largest and 2nd most populous country, is oneof the most exciting emerging markets in the world. Today, Indiahas moved firmly into the front runners of the rapidly growingAsia Pacific Region and has developed into a powerful complexand a rapidly changing nation due to a series of ambitiouseconomic reforms aimed at deregulating the economy andstimulating foreign investment.

India is also the 4th largest economy in the world in terms of

Public Private Partnership programme. India has been providedwith a distinct cutting edge in global competition by the skilledmanagerial and technical manpower that matches the bestavailable in the world and a middle class whose size exceeds thepopulation of the USA or the European Union.

Indias time tested institutions offer foreign investors atransparent environment that guarantees the security of theirlong term investments. These include a free and vibrant press, a

well established judiciary, a sophisticated legal and accountingsystem and a user friendly intellectual infrastructure. India offersconsiderable scope for foreign direct investment, joint venturesand collaborations due to its dynamic and highly competitiveprivate sector, that has long been the backbone of its economicactivity.

Brief economic profile

Indian economy is on the fulcrum of an ever increasing growth

curve. With positive indicators such as a stable 8 percent annualgrowth, rising foreign exchange reserves of close to USD 150billion, a booming capital market with the popular Sensex(sensitive index of The Stock Exchange, Mumbai) topping the11,000 point mark, increasing flow of foreign direct investment(FDI), and more than 20 percent surge in exports, India is now


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18.9 percent, exports during April-January 2005-06 had reachedUSD 74.9 billion and were well on their way to achieve the USD

92 billion target set for 2005-06.

Services exports grew by 71 percent in 2004-05 to USD 46billion, and 75 percent to USD 32.8 billion in the half year periodApril-September, 2005. In 2004-05, software service exports grewby 34.4 percent to USD 17.2 billion and by 32 percent to USD10.3 billion in the half year period April-September, 2005.


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Official language

Article 343 of the Indian Constitution recognises Hindi as theofficial language of central government India. The Constitutionalso allows for the continuation of use of the English languagefor official purposes.

The current position is thus that the Union government maycontinue to use English in addition to Hindi for its officialpurposes as a "subsidiary official language", but is alsorequired to prepare and execute a programme to progressively

increase its use of Hindi. The exact extent to which, and theareas in which, the Union government uses Hindi and English,respectively, is determined by the provisions of the Constitution,the Official Languages Act, 1963, the Official Languages Rules,1976, and statutory instruments made by the Department ofOfficial Language under these laws.

Laws Existing

The Indian law contents in the Legal subjects include:

International lawConstitutional and administrative lawCriminal lawContract lawTort lawProperty lawEquity and TrustsFurther disciplines

Country fact file

Total area 3.29 million square kilometers

Capital New Delhi


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Population Over 1 billion

Political systemand government

The Indian Constitutionprovides for a parliamentarydemocracy with a bicameralparliament and threeindependent branches theexecutive, legislature andjudiciary. The country has afederal structure with electedgovernments in states.

Head of State President

Head of Government Prime Minister

Principal marketsfor exports

USA, UAE, Hong Kong, UK, China,Singapore, Belgium, Japan, Italy,Bangladesh, Sri Lanka, France,Netherlands, Indonesia, Saudi

Arabia, Germany, Spain, Malaysia.

Principal marketsfor imports

US, China, Belgium, Switzerland,UK, Germany, Japan, Australia,Korea, Indonesia, UAE, Malaysia,Singapore, South Africa, HongKong, Italy, France, Russia, SaudiArabia, Sweden


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STARTING BUSINESS IN INDIA

Overseas organizations, looking at setting up of their businessin India, need to consider the following factors:

Incorporating a Company

Registering with the Software Technology Parks of India

(STPI)

Gaining Approval from the Department of

Telecommunications (DoT) for Call Centers

Exit Options

Incorporating a CompanyThere are mainly two types of companies in India:

Public companies, andPrivate companies.

Overseas organizations often find easier to set up a privatecompany rather than a public one as private companies have

more flexibility and are easy to operate. It takes around 20 - 30days to incorporate a company in India.

Options Available for Exit from the Business

Exit options take place in the following forms:Shareholders of Indian Companies can exit the company

either through a transfer of shares or other routes.Under Indian Exchange Control Laws, the transfer of shares

from a resident to a non-resident will require the priorapproval of the Foreign Investment Promotion Board (FIPB)and the Reserve Bank of India (RBI)

The transfer of shares from a non-resident to a residentrequires the prior approval of the RBI. The RBI ensures thatthe price of the transfer is not above a maximum price,which is based on the NAV (net asset value) of a private


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company and the price on the stock exchange for a listedcompany.

Under the provisions of the IT Act, gains realized onsale/transfer of shares on the Indian company by the foreigncompany would attract capital gains tax in India.

Long term capital gains realized on sale of shares of Indiancompanies not listed on a recognized stock exchange inIndia will be taxed at the rate of 20% and a surcharge of 5%.

Long term capital gains realized on sale of shares of Indiancompanies listed on a recognized stock exchange in Indiawill be taxed at the rate of 20%.

Short term capital gains realized by a domestic company willbe subject to tax at the rate of 36.75%.

Drawing up an agreement

The agreement, which defines the relationship between theconcerned parties and the nature of the transaction, can takemany forms including the following:

a third party agreement, where the customer and the vendorare not related

a captive agreement, where the customer and vendor arerelated parties

Building, Operation and Transfer agreements, where thevendor builds and develops the operation for the customerand at a future date transfers it to the customer.


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TYPES OF COMPANIES & COMPANY LAW

A company can be a public or a private company and could havelimited or unlimited liability. A company can be limited by sharesor by guarantee. In the former, the personal liability of membersis limited to the amount unpaid on their shares while in thelatter, the personal liability is limited by a pre-decided nominatedamount. For a company with unlimited liability, the liability of itsmembers is unlimited.

Apart from statutory government owned concerns, the most

prevalent form of large business enterprises is a companyincorporated with limited liability. Companies limited byguarantee and unlimited companies are relatively uncommon.

The types of companies run mostly in India are:-(i) Private Companies:

A private company incorporated under the Act has thefollowing characteristics:

The right to transfer shares is restricted. The maximum number of its shareholders is limited to 50

(excluding employees). No offer can be made to the public to subscribe to its shares

and debentures. Private companies are relatively less regulated than public

companies as they deal with the relatively smaller amountsof public money. A private company is deemed to be apublic company in the following situations:

When 25 percent or more of the private companys paid-upcapital is held by one or more public company.

The private company holds 25 percent or more of the paid-up share capital of a public company.

The private company accepts or renews deposits from thepublic.

The private companys average annual turnover exceeds Rs.250 million during a period of 3 consecutive financial years.


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(ii) Public Companies:A public company is defined as one which is not a private

company. In other words, a public company is one on whichthe above restrictions do not apply. The necessaryprocedures to be followed for registering the company hasbeen presented in the form of a flow chart, whichsummarizes the steps involved in formation of a companywith the Registrar of Companies under the headingSUMMARY OF STEPS INVOLVED IN FORMING ACOMPANY.

(iii) Foreign Companies:Foreign investors can enter into the business in India eitheras a foreign company in the form of a liaisonoffice/representative office, a project office and a branchoffice by registering themselves with the Registrar ofCompanies (ROC), New Delhi within 30 days of setting up aplace of business in India or as an Indian company in theform of a Joint Venture and wholly owned subsidiary. Foropening of the foreign company specific approval ofReserve Bank of India is also required.

Statutory requirements for formation of companiesSr. No. Particulars Private Company Public

Company

1. Minimum number ofshareholders

Two Seven

2.Maximum number of

shareholders FiftyUnlimited

3. Minimum number ofdirectors Two Three

4. Maximum number ofdirectors

SevenTwelve (can beincreased withGovernment

approval)


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5. Minimum paidup capitalrequirement

INR 1,00,000(Approx. USD 2200)

INR 5,00,000(Approx. USD

11000)

After verifying the documents, the ROC issues a Certificate ofIncorporation which is a proof of incorporation. A privatecompany can commence business immediately on obtaining aCertificate of Incorporation. A public company is required toobtain a Certificate of Commencement of Business by filingadditional documents with the ROC.

Share capital

The issue of shares symbolizes the payment of share capital in acompany. The share capital is required to be stated in thecompanys memorandum of association (MoA).Authorized share capitalThe nominal or authorized share capital is the amount of capitalstated in the MoA that the company is authorized to issue. Theissued capital is that part of the nominal or authorized capitalthat the company offers for subscription. Enhancement ofauthorized capital necessitates passing of appropriateresolutions by the board and shareholders of the company andpayment of additional fees to the ROC.Paid-up share capitalThe paid-up share capital is the amount of capital which issubscribed by the shareholders i.e. the share holders haveagreed to give consideration in cash or kind for the shares,unless those shares are fully paid up bonus shares issued bya company (generally out of the accumulated profits which areavailable for appropriation).


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Management

The Act lays down specific provisions with respect to managingthe affairs of a company so as to protect the interest of itsshareholders and investing public.DirectorsA public company is required to have a minimum of threedirectors and a private company a minimum of two directors.Directors are under a statutory duty to ensure that companysfunds are used for legitimate business purposes.They have an obligation to:

maintain a register and index of members/ debenture holder;call general meetings including the AGM each year;ensure proper maintenance of books of accounts andprepare balance sheets, profit and loss accounts and to get

them audited and place before AGM; anddisclose shareholdings etc.

Wholetime/ Managing DirectorsEvery public company or a private company which is subsidiaryof a public company having a paid up share capital of INR 50Million must have a managing or whole time director or a

manager. An approval from the Central Government (Departmentof Company Affairs) is required:

whenever any person is appointed as a wholetime/managing director of a public limited or a private companywhich is a subsidiary of a public company; and

if the remuneration proposed to be paid to such wholetime/managing director is more than what is prescribed inSchedule XIII of the Act.

Foreign Directors

There is no restriction on the appointment of foreigncitizens/Nationals/NRI as director/member of Board of Directorsof an Indian CompanyBoard meetingsBoard meetings are required to be held every three months.


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The Board may delegate its powers to borrow, invest funds andmake loans up to certain specified limits, to the committee of

directors or managing directors.

Audit of accounts

Auditors of a company are appointed/ re-appointed in the AGMof a company. Their tenure lasts till the conclusion of the nextAGM.

The company in a general meeting may remove auditors beforethe expiry of their term in office.

Auditors are required to make a report to the members of thecompany in respect of the accounts (balance sheet, profit andloss account) examined by them at the end of each financialyear.

The Act also provides for formation of an audit committee,consisting of qualified and independent directors, inter alia tohave discussions with the auditors about the internal controlsystems and review half yearly and annual financial statementsbefore submission to the Board.


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SummaryOfSteps Involved In Forming a PublicCompany

START

Obtaining approval for the proposed name of the Company fromthe ROC

Drawing up the Memorandum of Association

Drawing up the Articles of Association

Getting the appropriate persons to subscribe to theMemorandum (a minimum of 7 for a public company and 2 for a

private company)

Payment of Registration Fee to the ROC

Receipt of Certificate of Incorporation

Obtain a certificate of commencement of business from the ROCin case of a public company

END


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FOREIGN DIRECT INVESTMENT (FDI) POLICY

India has among the most liberal and transparent policies on FDIamong the emerging economies. FDI up to 100% is allowedunder the automatic route in all sectors except the following,where prior approval of the Government is required:-

Sectors prohibited for FDIActivities/items that require an industrial licenseProposals in which the foreign collaborator has an existing

financial/technical collaboration in India in the same fieldProposals for acquisitions of shares in an existing Indian

company in financial service sector and where Securities

and Exchange Board of India (substantial acquisition ofshares and takeovers) regulations, 1997 is attracted

All proposals falling outside notified sectoral policy/CAPSunder sectors in which FDI is not permitted

Most of the sectors fall under the automatic route for FDI. Inthese sectors, investment could be made without approval of thecentral government. The sectors that are not in the automaticroute, investment requires prior approval of the Central

Government. The approval in granted by Foreign InvestmentPromotion Board (FIPB). In few sectors, FDI is not allowed.

After the grant of approval for FDI by FIPB or for the sectorsfalling under automatic route, FDI could take place after takingnecessary regulatory approvals form the state governments andlocal authorities for construction of building, water,environmental clearance, etc.

Procedure under normal routeHere, the investors are only required to notify the RegionalOffice concerned of RBI within 30 days of receipt of inwardremittances and file the required documents with that officewithin 30 days of issue of shares of foreign investors.


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Procedure under Government ApprovalApprovals of all such proposals including composite proposalsinvolving foreign investment/foreign technical collaboration isgranted on the recommendations of Foreign InvestmentPromotion Board (FIPB).

Application for all FDI cases, except Non-Resident Indian (NRI)investments and 100% Export Oriented Units (EOUs), should besubmitted to the FIPB Unit, Department of Economic Affairs(DEA), Ministry of Finance.

Application for NRI and 100% EOU cases should be presented toSIA in Department of Industrial Policy and Promotion.

Application can be made in Form FC-IL. Plain paper applicationscarrying all relevant details are also accepted. No fee is payable.The guidelines for consideration of FDI proposals by the FIPBare at Annexure-III of the Manual for FDI.


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REGULATORY FRAMEWORK ON INVESTMENT IN INDIA

FDI can be divided into two broad categories:Investment under automatic route; andInvestment with prior approval of the government.

Automatic route

The automatic route connotes no requirement of any priorregulatory approval but only post facto filing/ intimation with theRBI as under:

Filing of intimation with the RBI within 30 days of receipt ofinvestment money in India; and

Filing of prescribed documents and particulars of allotmentof shares within 30 days of allotment of shares to foreigninvestors.

Government approval route

Investment in activities/ industries where automatic route is notavailable can be made with the approval of the government.Such approval is granted by the Foreign Investment PromotionBoard (FIPB). FDI up to 100 percent is allowed under theautomatic route in all activities/ sectors except the followingwhich require prior approval of the government:


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Where more than 24 percent foreign equity is proposed tobe inducted for manufacturing items reserved for small

scale sector.Proposals in which the foreign collaborator has an existing

financial/ technical collaboration in India in the same field.All proposals falling outside notified sectoral policy/ caps or

under sectors in which FDI is not permitted.

FDI policy is reviewed on an ongoing basis and changes insectoral policy/sectoral equity cap are notified through PressNotes (please refer to the table on page 19 for current sectorcaps).

An application is required to be filed with the SIA setting out thedetails of investment, business plan, financials of the foreigncompany, etc. Along with the application, a declaration as towhether applicant has had or has any previous financial/technical collaboration or trade mark agreement in India in thesame field for which approval has been sought.

Approval is granted by the FIPB on case to case basis afterexamining the proposal for investment. Prescribed filings as

applicable to the automatic route are also required to be carriedout under prior approval route.

Investment by way of acquisition of shares

Shares of an Indian company may be acquired by a foreigncompany without obtaining any prior permission of FIPB subjectto prescribed parameters/guidelines. However, acquisition ofshares which directly or indirectly result in acquisition of shares

of a company listed on stock exchange may require approval ofSecurities Exchange Board of India in case it triggers Take-OverCode Regulations. Where 15 percent or more of the votingcapital in a public listed company is acquired, the acquirer shallhave to make a public offer to acquire a minimum 20 percentequity stake from the public.


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New investment by an existing collaborator in India

In case a foreign investor with an existing venture orcollaboration (technical and/or financial) with an Indian partnerin a particular field proposes to invest in another proposal in thesame field in India, such additional investment is permissibleonly subject to a prior FIPB approval wherein both parties areobliged to submit/ demonstrate that the new venture does notprejudice the earlier venture. The FIPB approval however is notapplicable under the following circumstances:

investment by a venture capital fund registered with SEBI;

existing joint venture has less than 3 percent investment byeither party;

existing joint venture is defunct or sick.An existing venture for this purpose has been clarified to mean aventure existing as on January 12, 2005. Consequently, in case aforeign investor had entered into a technical and/ or financialcollaboration prior to January 12, 2005 and has not exited fromthe same before January 12, 2005, the investor would requireprior approval of the FIPB for making further investment in thesame field.

Portfolio investment in India

Qualified foreign entities (other than those predominantly ownedby non resident Indians) seeking to undertake portfolioinvestments in India are regarded as foreign institutionalinvestors (FIIs). Investment by FIIs is governed by the Securitiesand Exchange Board of India (Foreign Institutional Investors)Regulations, 1995, (SEBI Regulations). Eligible institutional

investors that can register as FIIs include asset managementcompanies, pension funds, mutual funds, banks, investmenttrusts, nominee companies, incorporated/ institutional portfoliomanagers, power of attorney holders, university funds,endowment foundations, charitable trusts and charitablesocieties. Broad based fund means a fund established orincorporated outside India which has atleast 20 investors with


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no single individual investor holding more than 10 percent of theshares or units of the fund. Sub-account includes foreign

corporates or foreign individuals and those institutions,established or incorporated outside India and those funds, orportfolios, established outside India, whether incorporated ornot, on whose behalf investments are proposed to be made inIndia by an FIl Investor. Nonresident Indians and overseascorporate bodies registered with RBI are not permitted toregister as a sub-account.

Conceptually, an application for registration as an FII can bemade in two capacities, namely as an investor or as a manager

i.e. those investing on behalf of its clients. The clients would getregistered with SEBI as sub-accounts of the FII. In addition, anFII (as a manager) can also invest its proprietary monies afterseeking specific approval of SEBI.

SEBI grants registration as FII based on certain criteria, namelyconstitution and incorporation of FII, track record, previousregistration with any securities commission, legal permissibilityto invest in securities as per the norms of the country of itsincorporation etc. SEBI grants registration to the FII initially for a

five year period and could be extended for further five yearperiods. The approval of the sub-account is co-terminus withthat of the FII.

Policy on FII investment

FIIs/ sub-accounts can invest in Indian equities, units,exchange traded derivatives, commercial papers and debt.An FII can invest up to 30 percent of its portfolio in debt

securities. It is also possible for an FII to declare itself a100 percent debt FII in which case it can make its entireinvestment in debt instruments.

Where the FIIs/ sub-accounts seeks to invest in debtsecurities, SEBI sets annual limits on the quantum of funds,which can be invested. Where FIIs/sub-accounts seek to


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invest primarily in equities, no such approval is required forthe quantum of funds proposed to be invested.

FIIs can buy/ sell securities on stock exchanges. They canalso invest in listed and unlisted securities outside stockexchanges where the price has been approved by RBI.

FII investments in India are subject to the following policy/limits:

(i) No single FII/ sub-account can acquire more than 10percent of the paid up capital of an Indian company. Incase of foreign corporate or individuals, each of suchsub-account shall not invest more than 5 percent of thetotal issued capital of that company.

(ii) All FIIs and their sub-accounts taken together cannotacquire more than 24 percent of the issued capital of anIndian company. The investment can be increased up tothe sectoral cap/ statutory ceiling, as applicable to thesaid company. This can be done by passing a resolutionby its Board of Directors followed by passing of a specialresolution to that effect by its General Body.

(iii) There are no limits on the investments made by FIIs/ sub-accounts (whether primarily equity investor or debtinvestor) in respect of debt securities (other thanconvertible debt securities) issued by a single issuer;

(iv) FIIs/ sub-accounts can transact in dematerialized formthrough a recognized stock broker and on a recognizedstock exchange and are required to give or take deliveryof securities.


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INVESTMENT VEHICLES FOR FOREIGN INVESTORS

Choice of vehicleDepending upon the business needs, a foreign companyconsidering a business presence in India can choose betweensetting-up a liaison office, a branch office/project office orincorporating a company, either wholly owned subsidiary orjoint venture with another person.Liaison officeA liaison office (LO) is set-up to act as a channel ofcommunication between the head office and target customers in

India. It is not permitted to undertake any commercial/ trading/industrial activity, directly or indirectly. Establishing an LOrequires approval of RBI which also monitors its activities on anongoing basis.Branch office/ Project officeForeign companies undertaking projects in India can set uptemporary project/site offices (PO) while a branch office (BO)may be set-up by companies engaged in manufacturing andtrading activities. The opening and operation of these offices toois regulated by the RBI. Requirement of obtaining prior approvalof PO that meets specified conditions has been dispensed with.A PO can only undertake activities relating to and incidental tothe execution of specific projects in India. Whereas a BO cancarry out the activities permitted by RBI, those generally do notinclude manufacturing (unless setup in an SEZ) and retailtrading.Local subsidiary or joint venture companySubsidiary or a Joint Venture Company can be formed either asa Private Limited Company or a Public Limited Company. The

key distinction between the two is that a private limited companycan restrict the right of its members to transfer the shares, canhave only 50 shareholders and is not allowed to have access todeposits from public directly. It is also subject to less regulatorycompliance requirements.A company is regulated inter alia by the Registrar of Companies(ROC) under the Companies Act, 1956.


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A company with foreign investment can undertake activitieswhich are in compliance with the FDI guidelines (discussed

earlier in this document).


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TAXATION IN INDIA

Since the onset of liberalization in the country, tax structure ofthe country is also being rationalized keeping in view thenational priorities and practices followed in other countries.Foreign nationals working in India are generally taxed only ontheir Indian income. Income received from sources outsideIndia is not taxable unless it is received in India. The Indian taxlaws provide for exemption of tax on certain kinds of incomeearned for services rendered in India. Further, foreign nationalshave the option of being taxed under the tax treaties that Indiamay have signed with their country of residence.

Remuneration for work done in India is taxable irrespective ofthe place of receipt. Remuneration includes salaries and wages,pensions, fees, commissions, profits in lieu of or in addition tosalary, advance salary and perquisites. Taxable paymentsinclude all allowances and tax equalization payments unlessspecifically excluded. The stock options granted by theemployer are taxable as capital gains at the time of sale ofshares acquired due to exercise of options.

India has a well-developed tax structure with clearly demarcatedauthority between Central and State Governments and localbodies. Central Government levies taxes on income (except taxon agricultural income, which the State Governments can levy),customs duties, central excise and service tax.

Value Added Tax (VAT), (Sales tax in States where VAT is not yetin force), stamp duty, State Excise, land revenue and tax onprofessions are levied by the State Governments. Local bodiesare empowered to levy tax on properties, octroi and for utilitieslike water supply, drainage etc.Taxes Levied by Central Government

Direct TaxesIndirect Taxes

Taxes Levied by State Governments and Local BodiesSales Tax/VAT


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Other Taxes

Taxes Levied by Central GovernmentDirect Taxes:-Taxes on Corporate IncomeCompanies residents in India are taxed on their worldwideincome arising from all sources in accordance with theprovisions of the Income Tax Act. Non-resident corporations areessentially taxed on the income earned from a businessconnection in India or from other Indian sources. A corporationis deemed to be resident in India if it is incorporated in India or if

its control and management is situated entirely in India.Domestic corporations are subject to tax at a basic rate of 35%and a 2.5% surcharge. Foreign corporations have a basic taxrate of 40% and a 2.5% surcharge. In addition, an education cessat the rate of 2% on the tax payable is also charged. Corporatesare subject to wealth tax at the rate of 1%, if the net wealthexceeds Rs.1.5 mn ( appox. $ 33333).Capital Gains TaxTax is payable on capital gains on sale of assets.

Long-term Capital Gains Tax is charged ifCapital assets are held for more than three years, andIn case of shares, securities listed on a recognized stock

exchange in India, units of specified mutual funds, theperiod for holding is one year.

Long-term capital gains are taxed at a basic rate of 20%.However, long-term capital gains from sale of equity shares orunits of mutual funds are exempted from tax.Short-term capital gains are taxed at the normal corporateincome tax rates. Short-term capital gains arising on the transfer

of equity shares or units of mutual funds are taxed at a rate of10%.


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Personal Income taxPersonal income tax is levied by Central Government and is

administered by Central Board of Direct taxes under Ministry ofFinance in accordance with the provisions of the Income TaxAct. The rates for personal income tax under different slabs areas follows:-Slab 1:

Net incomerange

Income tax ratesSurcharge

[see Note 1]

Educationcesss [see

Note]

Secondary andhighher

educations cess[see Note 4]

Up to Rs.1,8,000

Nill Nil Nil Nil

Rs. 1,8,000-Rs. 3,00,000

10% of (totalincome minus Rs.1,80,000)

Nil2% on income-tax

1% on income-tax

Rs. 3,00,000- Rs. 5,00,000

Rs 12,000+20% of(total income minusRs. 3,00,000)

Nil2% on income-tax

1% on income-tax

Rs. 5,00,000- Rs.10,00,000

Rs 52,000+30% of(total income minusRs. 5,00,000)

Nil2% on income-tax

1% on income-tax

Above Rs.10,00,000

Rs 2,02,000+30%of (total incomeminus Rs.10,00,000)

10% ofincome-tax[see Note2]

2% on income-tax andsurcharge


Slab 2:

Net incomerange

Income tax ratesSurcharge

[see Note 1]Education cess

[see Note]

Secondary andhigher

educationscess [see Note

4]

Up to Rs.2,25,000

Nil Nil Nil Nil

Rs. 2,25,000-Rs. 3,00,000

Nil Nil2% on income-tax

1% on income-tax

Rs. 3,00,000 -Rs. 5 ,00,000

Rs. 75,000+20%

of (total incomeminus Rs.3,00,000)

Nil 2% on income-tax 1% on income-tax

Rs. 5,00,000 -Rs. 10,00,000

Rs 47,000+30%of (total incomeminus Rs.5,00,000)

Nill2% on income-tax

1% on income-tax


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Above Rs.10,00,000

Rs. 1,97,500+30%of (total incomeminus Rs.

10,00,000)

10% ofincome-tax[see

Note 2]

2% on income-tax and

surcharge

1% on income-tax and

surcharge

Slab 3:

Net incomerange

Income tax ratesSurcharge[see Note

1]

Education cess[see Note]

Secondary andhigher

educationscuss [see Note

4]

Up to Rs.1,5,000

Nil Nil Nil Nil

Rs. 1,50,000 -Rs. 3,00,000

10% of (totalincome minus Rs.1,50,000)

Nil2% on income-tax

1% on income-tax

Rs. 3,00,000 -Rs. 5 ,00,000

Rs. 15,000+20% of(total income minusRs. 3,00,000)

Nil2% on income-tax

1% on income-tax

Rs. 5,00,000 -Rs. 10,00,000

Rs. 55,000+30% of(total income minusRs. 5,00,000)

Nil2% on income-tax

1% on income-tax

Above Rs.10,00,000

Rs. 2,02,000+30%of (total incomeminus Rs.10,00,000)

10% ofincome-tax[seeNote 2]



Tax IncentivesGovernment of India provides tax incentives for:-

Corporate profitAccelerated depreciation allowanceDeductibility of certain expenses subject to certain

conditions.These tax incentives are, subject to specified conditions, andare available for new investment in:

Infrastructure,Power distribution,Certain telecom services,Undertakings developing or operating industrial parks or

special economic zones,Production or refining of mineral oil,Companies carrying on R&D,Developing housing projects,


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Undertakings in certain hill states,Handling of food grains,

Food processing,Rural hospitals etc.

Double Tax Avoidance TreatyIndia has entered into Double tax Avoidance Agreement (DTAA)with 65 countries around the world. In case of countries withwhich India has DTAA, the tax rates are determined by suchagreements. Domestic corporations are granted credit onforeign tax paid by them, while calculating tax liability in India.In the case of the US, dividends are taxed at 20%, interestincome at 15% and royalties at 15%.

Indirect Taxes:-Excise DutyManufacture of goods in India attracts Excise Duty under theCentral Excise act 1944 and the Central Excise Tariff Act 1985.Here, the term Manufacture means bringing into existence a newarticle having a distinct name, character, use and marketabilityand includes packing, labeling etc.Most of the products attract excise duties at the rate of 16%.Some products also attract special excise duty/and an additional

duty of excise at the rate of 8% above the 16% excise duty. 2%education cess is also applicable on the aggregate of the dutiesof excise. Excise duty is levied on ad valorem basis or based onthe maximum retail price in some cases.Customs DutyThe levy and the rate of customs duty in India are governed bythe Customs Act 1962 and the Customs Tariff Act 1975. Importedgoods in India attract basic customs duty, additional customsduty and education cess. The rates of basic customs duty are

specified under the Tariff Act. The peak rate of basic customsduty has been reduced to 15% for industrial goods. Additionalcustoms duty is equivalent to the excise duty payable on similargoods manufactured in India. Education cess at 2% is leviableon the aggregate of customs duty on imported goods. Customsduty is calculated on the transaction value of the goods.


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Customs duties in India are administrated by Central Board ofExcise and Customs under Ministry of Finance.

Service Tax

Service tax is levied at the rate of 10% (plus 2% education cess)on certain identified taxable services provided in India byspecified service providers. Service tax on taxable servicesrendered in India are exempted, if payment for such services isreceived in convertible foreign exchange in India and the sameis not repatriated outside India. The Cenvat Credit Rules allow aservice provider to avail and utilize the credit of additional dutyof customs/excise duty for payment of service tax. Credit is alsoprovided on payment of service tax on input services for the

discharge of output service tax liability.Securities Transaction TaxTransactions in equity shares, derivatives and units of equity-oriented funds entered in a recognized stock exchange attractSecurities Transaction Tax at the following rates:-

Delivery base transactions in equity shares or buyer andseller each units of an equity-oriented fund - 0.075%

Sale of units of an equity-oriented fund to the seller mutualfund - 0.15%

Non delivery base transactions in the above - 0.015%Derivatives (futures and options) seller - 0.01%

Taxes Levied by State Governments and Local Bodies

Sales Tax/VATSales tax is levied on the sale of movable goods. Most of theIndian States have replaced Sales tax with a new Value AddedTax (VAT) w.e.f. April 01, 2005. VAT is imposed on goods onlyand not services and it has replaced sales tax. Other indirecttaxes such as excise duty, service tax etc., are not replaced byVAT. VAT is implemented at the State level by StateGovernments. VAT is applied on each stage of sale with amechanism of credit for the input VAT paid.


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There are four slabs of VAT:-0% for essential commodities

1% on bullion and precious stones4% on industrial inputs and capital goods and items of mass

consumptionAll other items 12.5%Petroleum products, tobacco, liquor etc., attract higher VAT

rates that vary from State to StateA Central Sales Tax at the rate of 4% is also levied on inter-Statesales and would be eliminated gradually.Some municipal jurisdictions levy octoroi/entry tax on entry ofgoods.

Other State TaxesStamp duty on transfer of assetsProperty/building tax levied by local bodiesAgriculture income tax levied by State Governments on

income from plantationsLuxury tax levied by certain State Government on specified

goods


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TRANSFER PRICING

In the case of businesses carried on by multinationalcompanies, detailed provisions relating to transfer pricing wereintroduced by the Finance Act, 2001 in order to facilitate thecomputation of reasonable, fair and equitable profits and tax inIndia. The Indian transfer pricing provisions generally follow theOECD guidelines albeit with some significant differences suchas a wider definition of the term associated enterprise; and theconcept of arithmetical mean as opposed to internationallyfollowed statistical measures of median/ arms length range.

In simple words, transfer pricing regulations require cross-border transactions between associated enterprises to beundertaken on an arms length basis. In this regard, Section 92of the Income Tax Act, 1961 (Act) provides that the price of anytransaction between associated enterprises, either or both ofwhom are non resident for Indian income-tax purposes(international transaction), shall be computed having regard tothe arms length price.

Two enterprises are considered to be associated if there isdirect/ indirect participation in the management or control orcapital of an enterprise by another enterprise or by samepersons in both the enterprises. Further, the transfer pricingregulations have prescribed certain other conditions that cantrigger an associated enterprise relationship. Significantconditions among these include:

Direct/ indirect shareholding giving rise to 26 percent ormore of voting power;

Dependency relating to source of raw materials/consumables as well as dependency relating to customer(s)for manufactured/ processed goods, price and otherconditions being influenced by the other contracting party;

Authority to appoint more than 50 percent of the board ofdirectors or one or more of the executive directors;


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Dependency in relation to intellectual property rights (know-how, patents, trademarks, copyrights, trademarks, licenses,

franchises etc) owned by either party; andDependency relating to borrowings i.e. advancing of loans

amounting to not less than 51 percent of total assets orprovision of guarantee amounting to not less than 10percent of the total borrowings.

Determination of arms length price

The Indian transfer pricing regulations require arms length pricein relation to an international transaction to be determined in

accordance with the most appropriate method from out of thefollowing prescribed methods:

Comparable uncontrolled price (CUP) method; Resale price method (RPM); Cost plus method (CPLM); Profit split method (PSM); and Transactional net margin method (TNMM).

Unlike the OECD guidelines, there is no order of preferenceprescribed, although in practice transfer pricing authorities doattempt to use traditional methods such as CUP, RPM andCPLM, before accepting a profit-based approach. The choice ofthe most appropriate method is required to be made havingregard to factors which inter alia include nature and class oftransaction, the classes of associated enterprises undertakingthe transaction, the functions performed by them.

Burden of proof and assessment

The burden of proving that the international transactions complywith the arms length principle lies with the taxpayer. Further theAct requires every person entering into an internationaltransaction to maintain prescribed information and documentsrelating to international transactions. The documentationrequirements laid down by the Indian transfer pricingregulations are detailed and prescriptive, and failure to maintain


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prescribed documentation attracts penalties that can extend upto 4 percent of the value of the international transaction entered

into by the taxpayer.

Further, every taxpayer entering into an international transactionis required to file a report (referred to as an accountants report)along with its tax return setting out prescribed details in respectof international transactions and associated enterprises. Theaccountants report forms the basis on which the transferpricing authorities undertake an audit. Under prevailingregulations, taxpayers reporting international transactions withassociated enterprises exceeding INR 50 million (approx USD1,100,000) are subjected to a transfer pricing audit. To the extentof transfer pricing adjustments made as a result of the audit,taxpayers lose any tax exemption to which they are otherwiseentitled to. Further, there are potential penalties to the extent ofone-time to three-times of the incremental tax arising as a resultof any adjustment. There is a separate penalty of INR 100,000(approx USD 2200) for not furnishing the accountants report.

Indian transfer pricing regulations are in an evolving stage with

only two years of audits having been completed, and at presentthere is limited administrative guidance and no judicialprecedent available. Further, it is pertinent to note that Indiantransfer pricing regulations do not have provisions for eitheradvance pricing arrangements or safe harbors. Howevertaxpayers are provided a limited safe harbor to the extent thatthe transaction value of the international transaction can vary tothe extent of 5 percent of the arms length price.


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************ DOINDOINDOINDOINGGGG BBBBUSINESSUSINESSUSINESSUSINESS ININININ INDIAINDIAINDIAINDIA ************

LABOUR RULES & REGULATIONS

India provides for core labour standards of International LabourOrganization (ILO) for welfare of workers and to protect theirinterests. India has a number of labor laws addressing variousissues such as resolution of industrial disputes, workingconditions, labor compensation, insurance, child labor, equalremuneration etc. Labor is a subject in the concurrent list of theIndian Constitution and is therefore in the jurisdiction of bothcentral and state governments. Both central and stategovernments have enacted laws on labor issues. Central lawsgrant powers to officers under central government in some

cases and to the officers of the state governments in somecases.The main central laws dealing with labor issues are given below:

Workmens Compensation Act 1923Minimum Wages Act 1948Payment of Wages Act 1936Industrial Disputes Act 1947Employees Provident Fund and Miscellaneous Provisions

Act 1952

Payment of Bonus Act 1965Payment of Gratuity Act 1972Maternity Benefit Act 1961Industrial Employment (Standing orders) Act 1946

Payment of Bonus Act, 1965

Payment of Bonus Act, 1965 applies to every factory andestablishment all over India. Bonus is granted under the Actbased on profit or on productivity. It will be applicable if the

number of employees is greater than or equal to 20. It wouldonly be applicable to an employee whose total salary does notexceed INR 3500/- per month (approx USD 80 per month).


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Employees Provident Fund and MiscellaneousProvisions Act, 1952

This is a retiral benefit to be paid to the employee on retirement,which requires a monthly contribution to be made by theemployer with a matching contribution from the employee. Atpresent the monthly contribution is 12 percent of basic salary(this can be built into the cost to company package negotiatedwith the employees).

This Act will be applicable where the number of employees isgreater than or equal to 20 at any point of time during the year.Employees getting basic salary of more than INR 6,500 permonth (approx USD 140 pm) can opt not to become themembers.

To comply with the Act, the enterprise will either need to obtaina registration with the Government Provident Fund Departmentor to form its own trust for the management of the providentfund.

Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 provides for gratuity toemployees in factories, plantations, shops, establishments andmines in the event of superannuation, retirement, resignation,death or total disablement due to accident or disease. Theemployee will get 15 days of wages based on the rate of wageslast drawn for every completed year of service in excess of sixmonths.

Gratuity is payable in any one of the following circumstances:on the employees retirement ; oron his becoming incapacitated prior to such retirement ; oron termination of his employment ; oron the employees death ( gratuity is received by the

successors of the employee)


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However except in the case of death or disablement gratuity isonly payable if the employee has rendered five years of

continuous service.

The Employees State Insurance Act, 1948

The Employees State Insurance Act, 1948 provides employeeswith sickness, maternity, and employment injury benefits. It willbe applicable if the employees are greater than or equal to tenand to an employee whose total salary does not exceed INR6500/- per month (approx USD 140 pm). The sickness cashbenefit includes a cash allowance that equals half of the sick

persons average daily wages during the previous six months.

In case of an employment injury, disablement and dependentsbenefit may be granted. When the disablement is full, the personwill receive a monthly pension equivalent to half of his/ heraverage wages during the previous twelve months.

Medical care and treatment to insured workmen are provided byprovincial governments at appropriate hospitals, dispensariesand other medical institutions. All the medical care costs will beshared between the corporation and the provincial government.

Contract Labor (Regulation and Abolition) Act, 1970

The Act is applicable if the number of contract employees in anestablishment (principal employer) is 20 or more. Contract laborrefers to a workman who is hired for the work of anestablishment through a contactor. For e.g. the securityservices, housekeeping services being provided by an agency

(contractor) to the LO (principal employer). An establishmentcovered under this Act is required to obtain registration as perthe manner specified. It is the primary responsibility of thecontractor to provide wages and other benefits to the contractlabor.


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However where the contractor fails to discharge his liability, theonus shifts on the principal employer. In order to ensure that the

contractor is complying with its various obligations, generally acompliance certificate specifying the compliance with respect tothe various laws is submitted by the contractor to the principalemployer at timely intervals (say once in a quarter) .

Shops and Establishment Act

This Act will be applicable where the number of employees inIndia is 10/ 20 depending on the specific rules of each state inIndia. Generally, every state requires registration with the office

of the Shops and Establishment for obtaining a certificate whichis required to be displayed in the establishment at all the times.

Working hours

Factories Act 1948 requires maximum working hours of 48 hoursper week. In practice, however, office employees normally worka five-day week of 3738 hours. Factory workers have onaverage a six-day week of 4348 hours. In most places, any workbeyond nine hours per day or 48 hours per week requirespayment of overtime at double the normal wage.

Wages and benefits

Wages and fringe benefits vary considerably depending on theindustry, company size and region. Wages generally have twocomponents: the basic salary and the dearness allowance,which is linked to the cost-of-living index. The allowance, paidas part of the monthly salary, may be at a flat rate or on a scalegraduated by income group. A mandatory bonus supplements

wages.

Companies use both time and piece rates. The former is morecommon in organized-factory industries, such as engineering,chemicals, cement, paper, etc. Rates may be per hour, day, weekor month. Piece rates, which the government has encouraged inorder to boost productivity, are usually paid monthly, although


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casual workers are paid on a daily basis. Some industries payproduction premiums.

In the organized sector, wages are often set by settlementsreached between trade unions and management.

Fringe benefits, such as provident funds, pensions andbonuses, normally add 4050% to the base pay.

Other benefits

To reward the employees for their performance and as a

retention tool, Indian firms offer share options to theiremployees. These are common in IT, biotechnology, media,telecoms and banks. SEBI has issued Employee Stock OptionScheme and Employee Stock Purchase Scheme Guidelines,which are applicable to listed companies. Companies arepermitted to freely price the stock options but are required tobook the accounting value of options in their financialstatements. The guidelines specify among others a one-yearlock-in period, approval of shareholders by special resolution,formation of a compensation committee, accounting policies

and disclosure in directors reports.

Termination of employment

Companies are required to obtain government permission toclose an operation or lay off workers in firms with 100 or moreemployees. The Industrial Disputes Act requires employerswishing to close an establishment to apply for permission atleast 90 days before the intended closing date. If the governmentdoes not issue a decision within 60 days of the application,

approval is deemed granted. A company can appeal a rejectionto the Industrial Tribunal. Workers in an establishment closedillegally (that is, without approval) remain entitled to full pay andbenefits.

It is usually difficult for large companies to dismiss staff.Retrenchments and layoffs require full explanation to and the


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prior approval of the state government. (Retrenchment under anagreement specifying a termination date requires no prior

notice.) Companies usually follow the last-in-first-out principle.

Compelled by competition to cut wage costs or consider movingout of high-wage locations, several companies have resorted tovoluntary retirement schemes (VRSs) or redeployments.Beneficiaries under an approved VRS of a private-sectorcompany are exempt from tax on monetary benefits up to INR500,000. Companies may amortize their VRS expenses over fiveyears. The government also uses VRSs in the public sector.

Labor-management relations

With some exceptions, India has company unions rather thantrade unions. These are often affiliated with national labororganizations. Various trade unions are promoted by politicalparties. The power of the unions is declining as the governmentpushes forward its reform agenda.

There are a number of national labor organizations. The IndianNational Trade Union Congress (INTUC), the labor wing of theCongress party, generally favors settlement of labor disputesthrough arbitration, the wage boards or the tribunals. The All-India Trade Union Congress (AITUC), affiliated to the CommunistParty of India, is a champion of workers rights and strikes. TheCentre for Indian Trade Unions (CITU) is affiliated to majorindustries. Hind Mazdoor Sabha is affiliated to the InternationalConfederation of Free Trade Unions. Bharatiya Mazdoor Sanghis affiliated with the Bharatiya Janata Party. In membershipterms, only these organizations qualify for recognition as

national trade unions.

In manufacturing companies, prior discussions betweenmanagement and labor leaders often help to forestall strikes.When strikes occur, they are usually settled by negotiation orthrough conciliation boards. It is common practice in manyforeign-owned manufacturing firms to avert strikes by


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employing a labor welfare officer to act as a go-between forlabor and management. Firms with 500 or more workers must by

law have such an officer who acts as personnel manager, legaladviser on labor law and, in non-unionized companies, a workerrepresentative.

The Industrial Disputes Act, 1947 requires industrialestablishments with 100 or more workers to set up workscommittees to promote measures for securing and preservingamity and good relations between the employer and workforce.

Collective bargaining has gained ground in recent years, but

agreements normally apply only at the plant level. Collectiveagreements have traditionally been the norm in banking; suchpacts may last up to five years. An industry association usuallynegotiates any rare industry-wide agreement.

At the central level, labor policies are managed jointly by theIndian Labor Conference and its executive body, the StandingLabor Committee, along with the various industrial committees.Representatives from the government, employers and labor areincluded in all three groups.

Employment of foreigners

Expatriate employment in manufacturing industries is generallylimited to technical and specialized personnel. Many foreignaffiliates have a few expatriates in India. Permission from theReserve Bank of India (RBI, the central bank) or government isnot required to employ a foreign national, but the Ministry ofHome Affairs, which grants visas and certain specificappointments, may require government approval in some cases.

Foreigners entering India on a Student, Employment, Researchor Missionary Visa that is valid for more than 180 days arerequired to register with the Foreigners Registration Officerunder whose jurisdiction they propose to stay within 14 days ofarrival in India, irrespective of their actual period of stay.Foreigners visiting India on any other category of long-term visathat is valid for more than 180 days are not required to register


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themselves if their actual stay does not exceed 180 days oneach visit. If such a foreigner intends to stay in India for more

than 180 days during a particular visit, that person shouldregister within 180 days of arrival in India.

It normally takes about three months to obtain an immigrationvisa, and foreign companies report no problems in acquiringvisas for their technical personnel. The visa is generally grantedfor the same period as the employment contract. Once it isobtained, a stay permit is granted; this must be endorsedannually by the state government where the foreign nationalresides.

Expatriates are often paid salaries several times those of theirIndian counterparts. Domestic private-sector salaries are risingquickly, although they vary widely among industries.


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INTELLECTUAL PROPERTY

India provides protection to Intellectual Property Rights inaccordance with its obligations under the Trade Related Aspectsof Intellectual Property Rights (TRIPS) Agreement of the WorldTrade Organization (WTO). The importance of intellectualproperty in India is well established at all levels- statutory,administrative and judicial.

India has well-established administrative mechanism forenforcement of Intellectual Property Rights (IPRs). Police

officers are empowered to take action against the infringementof IPRs in case of pirated and counterfeit products.

Cases of infringement of IPRs are tried in the judicial courts.Indian Intellectual Property Rights Laws also provide for appealsin the judicial courts of the administrative decisions relating toIntellectual Property Rights.

The Intellectual Property Rights protected under various statuesin India are as follows:-

PatentsCopyrights and related rightsTrademarksGeographical indicationsPlant varietiesDesignsLay out designs of integrated circuitsProtection of undisclosed information


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FOREIGN EXCHANGE REGULATIONS & REPATRIATION

India has liberalized its foreign exchange controls. Rupee isfreely convertible on current account. Rupee is also almost fullyconvertible on capital account for non-residents. Profits earned,dividends and proceeds out of the sale of investments are fullyrepatriable for FDI. There are the restrictions on capital accountfor resident Indians for incomes earned in India.

The Reserve Bank of Indias Foreign Exchange Departmentadministers Foreign Exchange Management Act 1999(FEMA).

Foreign Exchange Management Act (transfer of securities to anyperson resident outside India) Regulation as amended from timeto time regulates transfer for issue of any security by a personresident outside India.

Foreign Exchange Management Act (FEMA)

The Parliament has enacted the Foreign Exchange ManagementAct, 1999 to replace the Foreign Exchange Regulation Act, 1973.This Act came into force on the 1st day of June 2000. The object

of the Act is to consolidate and amend the law relating to foreignexchange with the objective of facilitating external trade andpayments and for promoting the orderly development andmaintenance of foreign exchange market in India.

This Act extends to the whole of India and will also apply to allbranches, offices and agencies outside India owned orcontrolled by a person resident in India. It will also be applicableto any contravention committed outside India by any person towhom this Act is applicable.

Repatriation of foreign exchange

India does not have full capital account convertibility as yet.However, there have been significant relaxations in recent pastin both current account as well as capital account related drawalof foreign exchange. Payments made in connection with


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services procured in the ordinary course of business areregarded as current account transaction provided such

payments do not alter payers assets and liabilities outsideIndia. Drawal of foreign exchange for current accounttransactions is regulated as under:

In case of some of the transactions listed in Schedule II and III,prior approval is not required if the payment is made out offunds held in exchange earners foreign currency (EEFC)

account of the remitter. It is clarified by the RBI that remittancesfor all current account transactions, other than those prescribedin aforesaid schedules, may be made without any specificapproval. Some of the relevant current account payments arediscussed hereunder.

Dividends

Dividend can be remitted without any specific approval of theRBI.

Royalty payments under technical collaboration

Royalty payments under technical collaboration are coveredunder Schedule II as follows:


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However, no approval is necessary if remittance is made out ofEEFC Account of the remitter.

Under the foreign direct investment guidelines, an Indiancompany can also pay brand royalty, (on use of trademarks andbrand name of the foreign collaborator without technologytransfer), under automatic route to the extent of 2 percent forexports and 1 percent for domestic sales.

In case of technology transfer, the payment for the use oftrademark and brand name subsumes into the technical know-

how royalty thereby additional brand royalties cannot be paid.Consultancy services

Remittances for any consultancy service procured from outsideIndia and not involving transfer of technology are covered inSchedule III. Remittance up to USD 1 million per project can bemade without any approval of the RBI. However, no suchapproval is necessary if remittance is made out of EEFC accountof the remitter.

Import of goods

Payments in connection with import of goods and services inthe ordinary course of business are generally permissible andcan be undertaken freely through direct filing of requireddocuments with the authorized dealer/ banker. The guidelines


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for imports contain specific provisions relating to period ofsettlement, charging of interest, etc.

Repatriation of capital

Foreign capital invested in India is generally allowed to berepatriated, along with capital appreciation, if any, after thepayment of taxes due on them. Generally, the repatriation ofcapital may take place in the following scenarios:

Winding up of the company in India;Sale of shares in the company to a third party

Netting

Foreign receivables and payables are not permitted to be nettedoff and the Indian Company is obliged to realize the entire exportproceeds and pay for the import of goods and servicesseparately. Specific relaxation exists in the regulations for somecases. The RBI also gives case specific approvals based onindustry practice and internal norms.

Other remittances

No prior approval is required for remitting profits earned byIndian branches of companies (other than banks)incorporated outside India to their head offices outsideIndia.

Remittances of winding-up proceeds of a project office of aforeign company in India are permitted under the automaticroute subject to fulfilment of necessary compliances.

Winding-up proceeds of a branch/ liaison office of a foreigncompany in India are permitted subject to RBI approval.


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VISA AND ENTRY REQUIREMENTS

Foreign nationals (except citizens of Nepal and Bhutan) requirea valid passport or travel document and a valid visa to enterIndia. Visas can be obtained from the Indian embassy/consulatelocated in the home country of the foreign national. Thefollowing visas are available from Indian embassies/consulatesabroad:

Business visaThis is valid for one or more years with multiple entries.Business visas for long-term stays are issued to individualsvisiting India on business for extended periods. This type of

visa enables foreign nationals to travel in and out of thecountry without having to re-apply for visas every sixmonths. A letter from a sponsoring organization indicatingthe nature of business, the likely duration of stay, placesand organizations to be visited and incorporating aguarantee to meet maintenance expenses, etc, shouldaccompany the application. The duration of stay in India foreach visit is only six months, even though a valid visa maybe for more than six months.

Employment visaThese are issued to skilled and qualified professionals orpersons who are engaged or appointed by companies,organizations or economic undertakings as technicians,technical experts, senior executives, etc. Employment visasare valid for one to five years. An employment visa may beobtained in the home country. A copy of the contract withthe employer has to be enclosed.

Conference visaThese are issued for individuals attending

conferences/seminars/meetings in India. A letter ofinvitation from the organizer of the conference must besubmitted along with the visa application. Delegates maycombine tourism with attending conferences.

Tourist visaTourist visas are normally valid for six months and areusually multiple-entry visas, although multiple entries


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should be specifically requested at the time of application.Applicants are required to produce documents to prove their

financial standing. Tourists traveling in groups of not lessthan four under the auspices of a recognized travel agencymay be considered for a collective visa for six months, eventhough a valid visa may be for more than six months.Tourist visas for up to five years may be granted if theforeigner is connected with the tourism trade.

Entry visaThese are issued on a case-by-case basis only to persons ofIndian origin depending on the purpose of the visit andeligibility. However, members of the family of a personemployed in India are also eligible for an entry visa. An entryvisa is valid for a period of six months to five years, withmultiple entries permitted.

Research visaIndividual research projects can be undertaken in Indianuniversities/higher education institutions after obtaining aresearch visa. The approval of the Ministry of HumanResource Development (Department of Education) shouldaccompany the visa application. The validity of the visa

coincides with the research period.Student visa

These are issued for the duration of the academic course ofstudy or for a period of five years, whichever is less, on thebasis of firm letters of admission from universities,recognized colleges or educational institutions in India.Change of purpose or institution is not permitted. Thevalidity of all visas is determined from the date of issue.

Transit visaTransit visas valid for single/double entry for shortstopovers for traveling to a third country are available.These are issued for a maximum period of 15 days withsingle-/double-entry facilities to bona fide transitpassengers only. Confirmed onward tickets and valid visafor the final destination are required.


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MissionariesValid for single entry and duration of stay. A letter in

triplicate, from a sponsoring organization indicatingintended destination in India, probable length of stay andnature of duties should be submitted along with a guaranteefor the applicants maintenance while in India. Processing ofapplications for missionaries may take up to three months.

Journalist visaJournalist visas are given to professional journalists andphotographers for up to three months stay in India. Theapplicant must contact the External Publicity Division of theMinistry of External Affairs on arrival in New Delhi, and theOffice of the Government of Indias Press InformationBureaus in other places.


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************ DOINGDOINGDOINGDOING BBBBUSIUSIUSIUSINESSNESSNESSNESS ININININ INDIAINDIAINDIAINDIA ************

INCENTIVES OFFERED

Incentives and Concessions are being offered in India forattracting Foreign and Domestic Investments in the followingform:

Customized package of incentives and concessionsCustomized package of incentives and concessions isprovided to prestigious projects having very hugeinvestments.

Electricity duty exemptionElectricity duty exemption is provided to all new industrial

units except those in negative list of industries for a certainperiod throughout.Reservation of Plots for NRIs and Foreign Investment

Projects10%f of plots in the nearly developed Industrial Estates andGrowth Centers have been reserved for NRIs with at least33% export orders and units having a minimum foreignequity of 33%.

Rebate on land costRebate equivalent to 20% of the land cost is given if the

industrial unit starts commercial production within certainnumber of years of offer of possession of industrial plots.

Time schedule for sanctions/approvalsA time schedule is fixed for various departments for givingnecessary sanctions/approvals to reduce time frames forproject completion.

Preferential allotment of land for IT industryThe Central Government has been giving preferentialtreatment for allotment of land to the IT industries on an

ongoing basis in all industrial areas developed by Centralagencies.Continuous-uninterrupted power supply for IT industry

The Central Government has been endeavoring to providecontinuous and uninterrupted power supply for IT industriesand shall exempt them from schedule power cuts.


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Encouragement to captive power generation in IT Parks/ITlocations is always given.

Facilities on Generator SetsCaptive power generation sets installed by the informationTechnology Industry are eligible for total exemption frompayment of electricity duty without any time limit.

Liberal change of existing industry to ITThe Central Government permits setting up of IT Softwareunits in urban areas and change of existing industry to IT.

Change of land useNo charges for change of land use (CLU) are levied for the ITindustry/IT Parks for a certain period. Permission forsale/leasing/subleasing in constructed buildings and openspaces is permitted for optimum utilization of infrastructure.Licenses for setting up Software Technology Parks (STPs)are being given liberally and on easy payment terms.


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STATISTICAL INFORMATION

ECONOMIC SURVEY 2007-08

Please visit:http://indiabudget.nic.in/es2007-08/esmain.htm

India's Foreign Trade: April- 2008

DEPARTMENT OF COMMERCEECONOMIC DIVISION

EXPORTS & IMPORTS : (PROVISIONAL)

APRIL (IRS)

EXPORTS (including re-exports)

2007-2008 46164

2008-2009 57633

%Growth 2008-2009/ 2007-2008 24.8

IMPORTS

2007-2008 74895

2008-2009 97151

%Growth 2008-2009/ 2007-2008 29.7

TRADE BALANCE

2007-2008 -28731

2008-2009 -39518

*Figures for 2007-08 are the latest revised whereas figures for 2008-09 areprovisional.

Country-wise Export

Values in Rs. Lacs

S.No. Country 2006-2007 %Share

2007-

2008(Apr-Jun)

%Share %Growth

1. AFGHANISTAN TIS 82,227.81 0.1438 19,675.61 0.1361

2. ALBANIA 2,020.77 0.0035 1,193.66 0.0083

3. ALGERIA 151,952.64 0.2658 37,706.45 0.2609

4. AMERI SAMOA 124.09 0.0002 24.95 0.0002

5. ANDORRA 58.16 0.0001 22.32 0.0002


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6. ANGOLA 90,717.60 0.1587 39,962.88 0.2765

7. ANGUILLA 404.86 0.0007

8. ANTIGUA 636.89 0.0011 28.31 0.0002

9. ARGENTINA 95,798.55 0.1675 23,592.48 0.1632

10. ARMENIA 3,908.03 0.0068 1,007.71 0.0070

11. ARUBA 661.99 0.0012 32.11 0.0002

12. AUSTRALIA 418,457.03 0.7319 83,566.20 0.5782

13. AUSTRIA 59,705.70 0.1044 15,001.14 0.1038

14. AZERBAIJAN 11,105.75 0.0194 2,641.92 0.0183

15. BAHAMAS 27,690.31 0.0484 381.50 0.0026

16. BAHARAIN IS 83,071.38 0.1453 22,329.24 0.1545

17. BANGLADESH PR 736,596.94 1.2883 195,885.73 1.3553

18. BARBADOS 1,206.23 0.0021 162.37 0.0011

19. BELARUS 6,504.94 0.0114 1,586.61 0.0110

20. BELGIUM 1,572,170.50 2.7496 420,928.63 2.9124

21. BELIZE 710.38 0.0012 240.50 0.0017

22. BENIN 68,554.93 0.1199 20,182.84 0.1396

23. BERMUDA 339.92 0.0006 163.14 0.0011

24. BHUTAN 26,018.73 0.0455 7,537.52 0.0522

25. BOLIVIA 2,469.47 0.0043 511.44 0.0035

26. BOSNIA-HRZGOVIN 1,646.85 0.0029 455.33 0.0032

27. BOTSWANA 4,916.37 0.0086 1,077.09 0.0075

28. BR VIRGN IS 397.13 0.0007 3.93 0.0000

29. BRAZIL 657,677.13 1.1502 132,361.70 0.9158

30. BRUNEI 3,759.13 0.0066 876.28 0.0061

31. BULGARIA 18,192.93 0.0318 8,246.40 0.0571

32. BURKINA FASO 6,785.93 0.0119 2,233.27 0.0155

33. BURUNDI 3,586.04 0.0063 859.47 0.0059

34. C AFRI REP 1,090.57 0.0019 85.61 0.0006

35. CAMBODIA 23,603.67 0.0413 4,685.63 0.0324

36. CAMEROON 37,555.03 0.0657 8,819.72 0.0610

37. CANADA 502,450.47 0.8787 114,229.28 0.7903

38. CANARY IS 35.78 0.0001

39. CAPE VERDE IS 96.22 0.0002 15.05 0.0001

40. CAYMAN IS 145.02 0.0003 157.06 0.0011


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41. CHAD 12,740.30 0.0223 1,647.13 0.0114

42. CHANNEL IS 162.43 0.0003 9.12 0.0001

43. CHILE 169,826.42 0.2970 17,672.37 0.122344. CHINA P RP 3,752,978.00 6.5637 794,362.69 5.4961

45. CHRISTMAS IS. 16.91 0.0000

46. COCOS IS 113.76 0.0002 10.53 0.0001

47. COLOMBIA 260,923.11 0.4563 25,460.13 0.1762

48. COMOROS 7,030.69 0.0123 908.50 0.0063

49. CONGO D. REP. 546.48 0.0010 171.78 0.0012

50. CONGO P REP 61,657.14 0.1078 10,682.68 0.0739

51. COOK IS 2.14 0.0000 38.77 0.0003

52. COSTA RICA 9,280.20 0.0162 3,096.62 0.021453. COTE D' IVOIRE 64,099.13 0.1121 34,663.23 0.2398

54. CROATIA 24,747.91 0.0433 6,828.61 0.0472

55. CUBA 12,148.67 0.0212 1,175.52 0.0081

56. CYPRUS 15,108.63 0.0264 3,766.92 0.0261

57. CZECH REPUBLIC 46,336.11 0.0810 18,758.45 0.1298

58. DENMARK 207,161.34 0.3623 43,679.28 0.3022

59. DJIBOUTI 139,207.94 0.2435 25,822.56 0.1787

60. DOMINIC REP 16,754.46 0.0293 3,369.58 0.0233

61. DOMINICA 1,287.59 0.0023 197.86 0.001462. ECUADOR 23,652.76 0.0414 6,885.79 0.0476

63. EGYPT A RP 344,350.84 0.6022 116,996.35 0.8095

64. EL SALVADOR 7,993.01 0.0140 1,384.32 0.0096

65. EQUTL GUINEA 2,152.15 0.0038 1,066.71 0.0074

66. ERITREA 3,008.65 0.0053 1,223.65 0.0085

67. ESTONIA 12,710.98 0.0222 14,375.83 0.0995

68. ETHIOPIA 52,384.09 0.0916 13,503.03 0.0934

69. FALKLAND IS 114.04 0.0002 18.95 0.0001

70. FAROE IS. 149.04 0.0003 11.34 0.000171. FIJI IS 20,101.12 0.0352 3,407.01 0.0236

72. FINLAND 87,924.24 0.1538 20,746.26 0.1435

73. FR GUIANA 34.90 0.0001 1.14 0.0000

74. FR POLYNESIA 927.82 0.0016 190.28 0.0013

75. FR S ANT TR 36.78 0.0001 4.01 0.0000

76. FRANCE 950,601.38 1.6625 227,436.67 1.5736


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77. GABON 7,531.04 0.0132 2,292.36 0.0159

78. GAMBIA 12,459.87 0.0218 3,187.67 0.0221

79. GEORGIA 18,533.07 0.0324 4,824.00 0.033480. GERMANY 1,800,723.13 3.1493 457,425.16 3.1649

81. GHANA 208,633.61 0.3649 170,754.45 1.1814

82. GIBRALTAR 7,884.05 0.0138 434.70 0.0030

83. GREECE 304,306.09 0.5322 57,562.00 0.3983

84. GREENLAND 1.18 0.0000 1.80 0.0000

85. GRENADA 353.62 0.0006 136.20 0.0009

86. GUADELOUPE 773.97 0.0014 68.30 0.0005

87. GUAM 1,215.51 0.0021 72.34 0.0005

88. GUATEMALA 33,502.31 0.0586 5,137.67 0.035589. GUINEA 36,223.70 0.0634 13,427.52 0.0929

90. GUINEA BISSAU 307.79 0.0005 1,164.94 0.0081

91. GUYANA 5,951.67 0.0104 1,034.27 0.0072

92. HAITI 9,822.71 0.0172 2,390.13 0.0165

93. HEARD MACDONALD 5.31 0.0000 5.43 0.0000

94. HONDURAS 51,204.17 0.0896 8,554.26 0.0592

95. HONG KONG 2,117,937.75 3.7041 531,886.00 3.6801

96. HUNGARY 46,846.21 0.0819 18,435.22 0.1276

97. ICELAND 5,200.01 0.0091 1,456.02 0.010198. INDONESIA 917,696.75 1.6050 173,552.16 1.2008

99. IRAN 656,482.06 1.1481 278,003.59 1.9235

100. IRAQ 92,066.55 0.1610 22,951.61 0.1588

101. IRELAND 102,184.09 0.1787 24,170.91 0.1672

102. ISRAEL 597,937.19 1.0457 142,433.86 0.9855

103. ITALY 1,621,242.88 2.8354 381,425.75 2.6390

104. JAMAICA 9,111.92 0.0159 5,080.87 0.0352

105. JAPAN 1,295,361.13 2.2655 331,176.63 2.2914

106. JORDAN 80,881.48 0.1415 24,742.57 0.1712107. KAZAKHSTAN 37,710.02 0.0660 9,167.43 0.0634

108. KENYA 595,254.94 1.0411 123,088.95 0.8516

109. KIRIBATI REP 1,520.00 0.0027 45.40 0.0003

110. KOREA DP RP 47,742.02 0.0835 86,983.41 0.6018

111. KOREA RP 1,137,901.00 1.9901 213,514.86 1.4773

112. KUWAIT 277,989.72 0.4862 63,227.47 0.4375


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113. KYRGHYZSTAN 16,

doing business in india- a business guide

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