taxation aspects for doing business in india aspects.pdftaxation aspects for doing business in india...
TRANSCRIPT
Taxation Aspects
for
Doing Business in India
V S P V & Co Chartered Accountants
New Delhi & Bengaluru
India Tel. +91-11- 26 16 98 16
Web: www.vspv.in e mail: [email protected]
1
CONTENTS
2
S.No Particulars Slide No
1 Doing Business in India –Advantages 3
2 Business Vehicles for Foreign Entities 4
3 Applicable Direct and Indirect Taxes 5-6
4 Direct Tax Implications 7-21
5 Double Taxation Avoidance
Agreement (DTAA) with Japan
22-23
6 Transfer Pricing Regulations 24-25
7 Indirect Tax Implications 26-33
8 Start up and Tax Incentives 34-35
9 Repatriation of Funds 36
Japan & India
• Largest & Fastest Growing Economy/Big Market in itself
• Global Business Process Outsourcing Hub
• Political Stability & Strategic Geographical Location
• Costs Competitive & Large Educated Youth Workforce
• Business Friendly Environment
3
Advantages of Doing Business in India
• Investing since 5 decades – India being a preferred
investment country
• Mitsubishi, Suzuki, Nippon-Insurance, Sony etc. are some
of the successful Japanese companies into India
• India being consumption driven economy, provides huge
market for Japanese products.
• Japan is Capital Intensive and India is Labour Intensive
Economy.
Business Vehicles for Foreign Entities
• Liaison Office (LO)
• Branch Office (BO)
• Project Office (PO)
• Wholly Owned Subsidiary (WOS)
Public or Private Limited Companies
Limited Liability Partnership (LLP)
• Joint Venture Company (JVC)
4
Applicable Direct and Indirect Taxes
Direct Taxes
Income Tax
Tax Deduction at Source (TDS, i.e. withholding tax)
Dividend Distribution Tax
Transfer Pricing Laws
Expat Taxation
5
Indirect Taxes
Central Excise Duty
Service Tax
Customs Duty
Central and State Level VAT
State Luxury Tax
Other Local Taxes
Goods and Services Tax (GST) – Expected to be implemented from July, 2017
6
Direct Tax – Income Tax
Scope of Taxation
Worldwide income from all sources of Domestic Companies
resident in India are taxed in India
Non-resident Companies are taxed on the income earned through
a Business Connection in India or any source in India or transfer
of a Capital Asset, being any share or interest in a Company
Incorporated outside India, deriving its value substantially from
assets located in India
A company is regarded as a resident in India if it is incorporated
in India or if its place of effective management (POEM) is in
India
India has Double Tax Avoidance Agreement with various
countries including Japan
7
Income Tax – Rates of Tax
• Domestic and foreign companies are taxed at a specified basic
tax rate, surcharge and cess based upon their total taxable income
• Provisions of Minimum Alternate Tax (MAT) are also applicable
on domestic and Foreign Companies
• LLP is taxable at the base rate of 30% further increased by
surcharge at the rate of 12% ( if total income exceeds 10 million)
and education cess at the rate 3%. However, profits distributed by
LLP are exempt in the hands of partners
• Foreign companies having Permanent Establishment (PE) in
India or Branch office or Project office are taxed at the basic rate
of 40%
• The tax rate for domestic and foreign corporations (including
surcharge and education cess) is summarized below:
8
Sl
No
Description Tax
Rates
%
Surcharge
%
Education
Cess %
Effective
Rate %
A. Where the total income is up to INR 10 Million
Domestic Company 30 % NIL 3 % 30.9 %
Foreign Company 40 % NIL 3 %
41.2 %
B. Where the total income is more than INR 10 Million and up to INR 100 Million
Domestic
Company
30 % 7% 3 % 33.06 %
Foreign Company 40 % 2% 3 % 42.02 %
C. Where the total income is more than INR 100 Million
Domestic
Company
30 % 12% 3 % 34.61 %
Foreign Company 40 % 5% 3 % 43.26 % 9
Withholding Tax Rates
10
Particulars Individual/
HUF
Domestic
Company /
Firm
Limit of
Payment in
INR
Salary As per the prescribed rates
applicable to Individual /
Women & Senior Citizens
--
Interest other
than Interest on
Securities
10 % 10 % Banking INR
10,000/- p.a.
Others INR
5,000/- p.a.
Deemed
Dividend
-- 10% INR 2,500/-
Payment to
Contractors/
Advertisers
1 % 2 % INR 30,000/-
per contract or
INR 1,00,000/-
p.a.
Commission &
Brokerage
5 % 5 % INR 15,000/-
Rent - Land &
Building
10 % 10 %
INR 1,80,000/- Rent - Plant &
Machinery
2 % 2 %
Professional
Fees &
Technical
Services /
Royalty
10 % 10 % INR 30,000/-
11
Particulars Individual/
HUF
Domestic
Company /
Firm
Payment in
Excess of
Withholding Tax Rates for Payments
to Foreign Companies
Nature of Payment Basic Rate
Interest on Foreign Currency Loan 20%
Royalties & Fees for Technical Services 10 %
Dividends received by Foreign Company 20 %
Short Term Capital Gains 15 %
Long Term Capital Gains 20 %
Other Income 40 %
12
Other Provisions related to Income Tax
• At present, basic Corporate tax rate for an Indian company is 30
percent which for the purpose of promoting easiness of doing
business in India is proposed to be reduced from 30 percent to 25
percent over the next four years, starting from the financial year
2016-17
• Basic Minimum Alternate Tax (MAT) rate for domestic and
foreign companies is 18.5 %, which is calculated on the book
profit under prescribed rules
• A presumptive taxation regime exists under the Act under which
specified business activities like exploration, etc. of mineral oils,
execution of certain turnkey contracts, and air and shipping
operations in the hands of non-residents are taxed on presumptive
basis
13
• Dividend Distribution Tax @ basic rate of 15 % (effective rate
being 20.36 % ) is payable by domestic companies on the amount
of dividends declared by them
• Rates of depreciation on fixed assets prescribed on written down
value basis
• Unabsorbed business losses can be carried forward and set off
against the business profits of any business for a maximum of
eight years
• Unlisted companies could lose the right to carry forward the
business loss if there is a substantial change in the shareholding.
• Capital losses may also be carried forward for eight years
• Unabsorbed depreciation can be carried forward for an indefinite
period and can be offset against any head of income
14
• Broadly, the assessment system consists of
– a) Self Assessment;
– b) Regular/Scrutiny Assessment;
– c) Best Judgment Assessment;
– d) Income Escaping Assessment.
• Filing due dates (unless otherwise extended under certain
circumstances):
i) 30th November – If the company has international transactions
ii)30th September– Any other company
• Carry back of losses in not permitted in India
• Authority for Advance Rulings for non-residents
15
Advance Ruling
• Authority For Advance Ruling Set up by Government of India
(GOI) under Income Tax Act
• Non-Residents can know its liability towards income tax before
start of investment in India
• Best suited to sought complex issues of income tax including
those concerning DTAA’s
• Rulings of AAR binding upon Income Tax Department
• Time bound disposal of applications
• Non-resident himself or resident entering into business with
Non-Resident or public limited company can obtain advance
Ruling
16
Income Tax Procedures
• Obtaining Permanent Account Number (PAN)
• Payment of advance tax
• Filing of tax returns
• Assessment by Assessing Officer
• Appeals to Commissioner (Appeals)
• Appeals to Income Tax Appellate Tribunal
• Appeals to High Court
• Reference to Supreme Court
• Website www.incometaxindia.gov.in
17
Dispute Resolution Mechanism in India
• Laws and compliances in India are being simplified to avoid
arising of disputes
• Even if dispute arises, alternate judicial mechanisms like
Authority for Advance Ruling, Dispute Resolution Panel, Income
Tax Appellate Tribunal, etc. are setup to resolve dispute in time
bound manner
• Judicial system of High Courts and Supreme Courts have been
asked to make faster disposal of cases – commercial courts setup
• Different Tribunals under various laws like National Company
Law Tribunal, Securities Appellate Tribunal, etc. have been made
functional for faster disposal of disputes
18
Income Tax on Employees Deputed by
Parent Companies
Basic Tax structure for resident individuals and non-resident individuals:
19
Net Income
Range
Income Tax
Rates
Surcharge Education Cess
Up to INR 2,50,000/- Nil Nil Nil
INR2,50,000/- to
INR5,00,000/-
10% (of total income
minus INR2,50,000)
Nil
3 %
INR5,00,000/- to
INR10,00,000/-
INR25,000/- + 20% (of
total income minus
INR5,00,000)
Nil
3 %
INR10,00,000/- to
INR99,99,999/-
INR1,25,000/- + 30%
(of total income minus
INR10,00,000)
Nil
3 %
Above
INR1,00,00,000/-
INR28,25,000/- + 30%
(of total income minus
INR10,00,000)
12 % 3 %
Specified Business Deductions
• Any capital expenditure (excluding land, goodwill, financial instrument) incurred wholly for specified business prior to the commencement of operations and capitalized as on the date of commencement of operations allowed as deduction
Quantum of Deduction :
– 150% of deduction of capital expenditure on:
Cold-chain facility and warehouse facility for the storage of agricultural produce
Building and operating a hospital (specified parameters)
Developing and building a housing project (affordable housing)
Production of fertilizers in India
20
- 100% of deduction of capital expenditure on:
Building and operating a two-star and above hotel
Developing and building a slum re-development housing
project Setting up and operating an inland container depot or a
container freight station
Bee-keeping
Setting up and operating a warehouse facility for storing sugar
Laying and operating a slurry pipeline for the transportation of
iron ore
Setting up and operating a semi-conductor wafer fabrication
manufacturing unit
21
Double Taxation Avoidance Agreement
with Japan • Comprehensive Treaty between India and Japan
• Override domestic tax law, to the extent that treaty more
beneficial to taxpayer
• Apart from DTAA, India also has two other bilateral agreements
with Japan
Comprehensive Economic Partnership Agreement(CEPA)
wherein India has committed to reduce tariffs from 87% of its
tariff lines, whereas Japan will reduce tariffs from 92% of its
tariff lines
Social Security Agreement (SSA) wherein employees posted
to the host country under short term contracts are exempt
from making social security payments in host country if paid
in home country
22
Article Heading / Purpose of Article
5 Permanent Establishment (PE)
6 Income From Immovable Property
7 Profits From Business
10 Dividend Income
11 Interest Income
12 Income From Royalties and Fees From Technical Services
13 Income From Capital Gains
14 Independent Professional Services
15 Income From Salary, Wages and Other Similar Remuneration
16 Director’s Fees
Main articles of DTAA between India and Japan is
summed up below:
23
Transfer Pricing
• Applicable to specified international transactions with Associate
Enterprises one of which is a non-resident
• 5 recognized methods for Arms Length Price (ALP)
determination
-Comparable Uncontrolled Price
-Resale Price Method
-Cost Plus Method
-Profit Split Method
-Transactional Net Margin Method
• Specified records like Transfer Pricing Study Report, information
and documents related to international transactions, records of
uncontrolled transactions, manner, assumptions of determining
Arm’s Length Price 24
• Documents to be maintained for 8 years
• No need to maintain documents prescribed under the Income Tax Laws, if book value of international transactions does not exceed INR 10 Million. However, the assessee need to justify the Arm’s Length Price
• Audit under Transfer Pricing required
• From Assessment Year 2017-18, the entities claiming profit liked deductions under 80IA,section 10AA of the act are governed by provisions of Domestic Transfer Pricing Act
• Scrutiny of transactions by Income Tax Authorities in certain cases
• Government provides option for Advance Pricing Agreement, Safe Harbor Rules to reduce litigations and easy compliances with the law
25
Indirect Taxes
Excise Duty
• Duty payable by manufacturer on manufacture or production of
goods
• To be paid at the time of removal from factory
• Normally payable on selling price – generally recovered from
customer
• Excise duty rates ranges from 0 % to 12%. However, generally
basic rate of excise duty being 12%
• Cenvat Credit available for excise duty paid on inputs & service
tax paid on input services
26
Service Tax
• Payable by service provider on provision of specified services
• Most services taxable, other than medical services
• Payable on value of services under normal and reverse charge
mechanism
• Rate of Service Tax being 0 % to 14 %. However, generally
effective rate is 15 % including two cess of 0.5% each
• Generally recovered from customer
• Payable by service recipient on import of services under Reverse
Charge
• Export of services exempt
• Cenvat Credit available for excise duty paid on inputs & service
tax paid on input services
• Website www.servicetax.gov.in 27
Customs Duty
• Payable to Central Government (CG) on import and export of
goods into India on value of transactions at the time of clearance
of goods from port/airport
• Normal Customs Duty rate of 10% plus education cess but differs
from product to product
• Products classified on internationally accepted Harmonized
System of Nomenclature (HSN)
• CG can impose concessional/ preferential custom duty
• Basic Customs Duty, Countervailing Duty, Special Duty are few
components of customs duty
• Credit of various components available in Excise, VAT, etc.
• To promote exports, CG introduced various schemes like Export
Oriented Units(EOU), Software Technology Parks (STP), Bio-
Technology Parks (BPT), Special Economic Zones (SEZ) under
Foreign Trade Policy. 28
Value Added Tax (VAT)
• Payable on sale of goods to the state government
• Payable on sale price, including excise duty
• Lease and works contracts deemed to be sales
• Composition scheme available for small entities
• VAT rate ranges from 0 % to 20 %. Generally on most of the
items rate of 12.5% is levied
• Set off available for VAT paid on purchases
• Central Sales Tax on inter-state transfers
• No VAT on purchases during course of import or on exports
• It is proposed that the Excise duty, VAT, Service Tax will be
merged into a common tax Goods and Services Tax
29
GOODS AND SERVICES TAX (GST)
Overview of GST
• At present various Indirect Taxes are levied both at Central and
State level
• Under the current system not all kinds of Indirect Taxes are
creditable against each other, leading to tax cascading
• Just like consumption tax in Japan, a system of unified Goods
and Services Tax (GST), has been proposed to bring a
fundamental shift in the way business transactions are taxed in
India
• GST is proposed as a comprehensive value added tax levied on
the supply of all goods and services (except for a negative list)
• Various State and Central level Indirect taxes such as Excise duty,
State level taxes on sale of goods, Service tax would be
subsumed under GST
30
• GST is expected to have a dual structure with Centre and State
jointly levying one tax called Integrated Goods and Services Tax
(IGST) on the same supply of goods / services
• IGST will comprise of Central Goods and Services Tax (CGST)
and State Goods and Services Tax (SGST)
• IGST shall not be levied upon the export and import of goods
• Provisions for cash refund of duty paid on inputs used to
manufacture or provide services
• Option for temporary registration under the GST law for specific
period available
31
Key Benefits / Concepts of GST
• Taxable event changed to ‘supply’ from manufacture or
production
• Uniform and harmonized classification of Goods and Service
across all the states
• Majority of indirect taxes both at State and Central level to be
subsumed
• Consistent basis of valuation for all goods and services
• Easy credit of GST paid available
• Option for composition scheme available
• No need to register under GST if gross annual turnover does not
exceed INR 1.9 Million
• GST is to paid, if gross annual turnover exceed INR 2 Million
32
Sectors to be benefited most from GST
• Automobile Sector
• Auto Ancillary Sector
• Building Materials
• Consumer Durables
• Fashion Retail
• Infrastructure
• FMCG
• Infrastructure
The average indirect tax outflow combined together is around
20% - 45% in above sectors under current tax regime, with
introduction of GST, proposed rates being 17% - 18%, net out
flow of taxes is bound to reduce, resulting in price reduction
thereby stimulating the demand for these products. 33
Start-ups and Tax Incentives
• To promote business in India, GOI has started various
programmes and provides various incentives to businesses being
set up in India
• One of such programme is Start up Businesses
• Entity being Company, LLP or partnership firm new or existing
incorporated between April, 2016 to March, 2019 shall be
considered as start up upto 5 years from date of incorporation /
registration and turnover for any financial year does not exceed
INR 50 Million and works towards innovation, development of
products or services driven by technology or Intellectual
Property.
• To avail tax and other benefits, Start ups has to register with
Department of Industrial Policy and Promotion (DIPP)
34
• 100% of profits of start-up business is exempt for the first seven
years subject to MAT from existing three years.
• No Capital gains for equity shares held for 2 years or more of
start-ups. Smooth exit for foreign investors provided.
• Turnover limit for presumptive taxation for small businesses
raised to INR 20 Million from earlier INR 1o Million.
• Tax rates reduced to 25% from 30% for MSME’s with turnover
less then INR 500 Million and who forgoes exemptions
• Excise duty and customs duty rates reduced significantly
• Government to make EPF contribution (employer’s contribution)
of 8.33 per cent for all new employees for first three years, which
shall save cost for the start-up companies and provide security
benefits to the employees.
• Easy financing options for start-ups.
35
Repatriation of Funds
• Foreign Capital invested in India can by repatriate along with
appreciation, after payment of taxes due subject to FDI rules
• Foreign Capital can be repatriated either by way of Buy Back of
shares or Capital reduction
• Buy back of shares attracts Dividend Distribution Tax (DDT)at
effective rate of 23.07 % on consideration less amount received
for issue of shares whereas in case of capital reduction , DDT of
20.36% is payable by company to the extent of accumulated
profits. Consideration in excess of accumulated profits is taxable
as capital gains in the hands of shareholders
• Profits earned by an Indian Company can be repatriated after
payment of DDT at an effective rate of 20.36% without approval
of RBI
• Partners of an LLP can freely draw a share of profits without any
tax outflow 36
Who we are
Established in 1985,
V S P V & Co, Chartered Accountants has a goal to provide highest quality services to clients. The firm is dedicated to take multiple roles, leadership and responsibilities in a complex, dynamic and rapidly changing business environment. With world becoming a global village, the firm has satisfactorily served domestic and global clients.
What we do
Business Advisory II Business Analysis and Initial Statutory Setup II Book Keeping and Financial Reporting II Assurance and Due Diligence II Taxation Advisory II Payroll Management II Mergers and Acquisitions II Legal Advisory
37
Services We Offer • Business Advisory
• Assurance
• Due Diligence
• Tax Advisory
• Book Keeping
• Financial Reporting
• Payroll Management
• Mergers and Acquisitions
• Legal Advisory
• Statutory Compliances
Sectors We Cater • Construction and
Infrastructure
• Banking and Finance
• Engineering
• Food Processing
• BPO Services
• Freight Forwarding
• Hospitality
• Telecom
• Travel
38
Why We
At V S P V & Co, our professionally qualified and experience
professionals has vast knowledge of India’s Economic, Legal,
Political and Cultural framework to guide you for business expansion
and processes to create maximum wealth for your investment.
Thank You!
39
V S P V & Co Chartered Accountants
A 2/78,
Safdarjung Enclave,
New Delhi – 110 029
India
No.8, 2nd Main,
9th Cross Road,
1st Stage,
Indiranagar,
Bengaluru, India