India Highlights 2018 - Deloitte United States

I nternational Tax I ndia Highlights 2018

I nvestm ent basics:

Cu r r e n cy ? I ndian Rupee ( I NR)

For e ign e x cha nge cont r ol ? There is a sim plified regulatory regim e for foreign exchange transactions and liberalized capit al account t ransact ions. Current account transactions are perm itted unless specifically prohibited and are m onit ored by t he cent ral bank. Foreign investm ent is perm itted in m ost industries, although sector-specific caps have been set for foreign investm ent in certain industries, such as defense, civil aviation, t elecom m unicat ions, banking, insurance, pension, ret ail t rade, et c. The governm ent has int roduced various program s to m ake I ndia an attractive hub for m anufacturing and attract global investm ents and is taking m easures to sim plify the processes to set up or exit from business in I ndia.

Accounting principles/ financial statem ents ? Account ing st andards issued by t he I nst it ut e of Chart ered Accountants of I ndia apply, which largely are based on I AS. I ndia has initiated steps toward the convergence of it s account ing st andards wit h I FRS ( subj ect t o a few carve- outs) ; these standards are called I ndian Accounting St andards ( I nd AS) . For account ing periods com m encing on or after 1 April 2016, the I nd AS are m andatory for listed and unlisted com panies m eeting certain net worth thresholds, in various phases.

Principal business ent it ies ? Various form s of business ent it y are perm it t ed. These include t he public/ privat e lim ited liability com pany, one-person com pany (owned by a resident individual), partnership firm , lim ited liability part nership ( LLP) , sole propriet orship, branch office, liaison office, proj ect office or sit e office of a foreign cor por at ion .

Cor por a t e t a x a t ion :

Residence ? A corporat ion is resident if it is incorporat ed in I ndia or if its place of effective m anagem ent, in that year, is in I ndia.

A part nership firm , LLP or ot her non- individual ent it y is considered resident in I ndia if any part of the control and m anagem ent of its affairs takes place in I ndia.

Ba sis ? Resident s are t ax ed on worldwide incom e; nonresident s are t axed only on I ndian- source incom e. I ndian- source incom e m ay include capit al gains arising from t he t ransfer of any share or int erest in a com pany or entity registered or incorporated outside I ndia if the share or interest directly or indirectly derives its substantial value from asset s locat ed in I ndia. Foreign- source incom e derived by a resident com pany is subj ect to corporation tax in the sam e way as I ndian incom e. A branch of a foreign corporation is taxed as a foreign corporation.

Ta x a ble incom e ? Tax is im posed on a com pany's profits, which consist of business/ trading incom e, passive incom e and capital gains. I ncom e resulting from the indirect t ransfer of asset s locat ed in I ndia is included. Norm al business expenses, as well as other specified item s, m ay be deducted in com puting taxable incom e.

Taxation of dividends ? Dividends paid by a dom estic com pany are subj ect t o dividend dist ribut ion t ax ( DDT) at 15% of the aggregate dividend declared, distributed or paid. The DDT payable is required t o be grossed up. The effective rate is 20.3576% , including a 12% surcharge and a 3% education cess. Dividends subj ect to DDT generally are exempt from tax in the hands of the recipient. As from 1 April 2017, an additional incom e tax of 10% (plus the surcharge and cess) applies on a gross

I ndia Highlights 2018

basis on dividend incom e that is declared, distributed or paid by a dom estic com pany to a resident individual, Hindu Undivided Fam ily ( HUF) or part nership firm if t he aggregate dividend incom e of the recipient exceeds I NR 1 m illion per annum .

Dividends received from a foreign com pany generally are subj ect to corporation tax, with a credit for any foreign tax paid. However, dividends received by an I ndian com pany from a foreign com pany in which t he I ndian com pany holds at least 26% of the equity shares are subj ect to tax at a reduced base rat e of 15% on the gross incom e. A surcharge and cess also are im posed.

Dividends paid by a dom estic com pany that are liable to DDT m ay be reduced by: (1) the am ount of dividends received from a dom est ic subsidiary com pany during t he financial year, if t he subsidiary has paid DDT; and ( 2) dividends received from a foreign subsidiary com pany, provided tax is payable on such dividend incom e by the dom estic com pany at the reduced base rate of 15% .

Ca pit a l ga in s ? The t ax t reat m ent depends on whet her gains are long or short t erm . Gains are long t erm if t he asset is held for m ore than three years ( one year in the case of listed shares and specified securities, and two years in the case of unlisted shares and im m ovable property (land, buildings or both)).

Long- t erm gains on list ed shares and specified securit ies are exem pt if the transaction is subj ect to securities t ransact ion t ax ( STT) . The exem pt ion generally is not available if the equity shares were acquired on or after 1 Oct ober 2004 and t he acquisit ion was not chargeable t o STT; however, t he Cent ral Board of Direct Taxes has clarified that the exem ption is available in specified cases ( such as acquisit ions under preferent ial allot m ent , off m arket acquisit ions, acquisit ions during a delist ed period, etc.) . Where gains on listed shares and specified securit ies are not subj ect t o STT, a 10% t ax applies ( wit hout t he benefit of an inflat ion adj ust m ent ) . The applicable tax rate on long-term capit al gains derived by a nonresident from the sale of unlisted securities is 10% ( without the benefit of foreign currency conversion or an inflat ion adj ust m ent ) . Gains on ot her long- t erm asset s are taxed at 20% , but with the benefit of an inflation adj ustm ent.

Short- term gains on listed shares and specified securities t hat are subj ect t o STT are t axed at 15% ; gains from other short- t erm assets are taxed at t he norm al tax rat es. A surcharge and cess also are im posed.

An unlisted dom estic com pany is liable to pay an additional tax of 20% on incom e distributed to a shareholder on account of a buyback of the com pany's sh ar es.

Losses ? Business losses and capital losses m ay be carried forward for eight years, with short- term capital losses offsetting capital gains on both long and shortt erm asset s, and long- t erm capit al losses offset t ing only long- t erm capit al gains. Ot her t han unabsorbed depreciation (which m ay be carried forward indefinitely) , losses m ay be carried forward only if the tax return is filed by t he due dat e. Unabsorbed depreciat ion m ay be offset against any incom e, whereas business losses m ay be offset only against business profits in subsequent y ear s.

Losses incurred from t he let t ing out of " house propert y" m ay be offset against other heads ( cat egories) of incom e only up t o I NR 200,000. Unabsorbed losses from house property m ay be carried forward for up to eight years for offset against the incom e from house property of subsequent years.

Ra t e ? The st andard rat e is 30% for dom est ic com panies and 40% for foreign com panies and branches of foreign com panies. Taking int o account t he surcharge and cess, the highest effective rate is 34.608% for dom estic com panies and 43.26% for foreign com panies. A 25% rate, plus the surcharge and cess, m ay be elected by certain new resident m anufacturing com panies ( incorporat ed on or aft er 1 March 2016) , if t he com pany does not claim certain specified deductions, incentives, etc. A 25% rate, plus the surcharge and cess, also is applicable for financial year 2017- 18 t o dom est ic com panies with total turnover or gross receipts of up to I NR 500 m illion in financial year 2015- 16.

Surt ax ? A 7% surcharge applies to dom estic com panies if incom e exceeds I NR 10 m illion ( 2% for foreign com panies) , and a 12% surcharge applies if incom e exceeds I NR 100 m illion ( 5% for foreign com panies) . An additional 3% cess is payable in all cases.

Alt e r na t ive m inim um t a x ? Minim um Alt ernat e Tax ( MAT) is im posed at 18.5% ( plus any applicable surcharge and cess) on the adj usted book profits of corporations whose tax liability is less than 18.5% of their book profit s. MAT does not apply t o cert ain incom e of foreign com panies, including capit al gains on t ransact ions involving securities, interest, royalties and fees for t echnical services. A credit is available for MAT paid against tax payable on norm al incom e, which m ay be carried forward for offset against incom e tax payable in subsequent years. As from 1 April 2017, the tax credit m ay be carried forward for up to 15 years.

Any person ot her t han a corporat ion ( including an LLP) is liable t o an alt ernat e m inim um t ax ( AMT) at 18.5% ( plus any applicable surcharge and cess) of the adj usted total

I ndia Highlights 2018

incom e where the norm al incom e tax payable is less than t he AMT. AMT also is im posed on a person eligible for invest m ent - linked incent ives. The adj ust ed t ot al incom e is t he t ot al incom e before giving effect t o t he AMT provisions, as increased by certain deductions claim ed in com put ing t he t ot al incom e, including t he t ax holiday claim ed by unit s in a Special Econom ic Zone ( SEZ) . A t ax credit is allowed for t he AMT paid against t he t ax payable on norm al incom e. From 1 April 2017, t he t ax credit m ay be carried forward up to 15 years.

For e ign t a x cr e dit ? Foreign t ax paid m ay be credit ed against I ndian tax on the sam e profits, but the credit is limited to the am ount of Indian tax payable on the foreign incom e. Specific rules have been introduced regarding the m echanism for grant ing a foreign t ax credit .

Part icipat ion exem pt ion ? No, except for DDT in som e cases

Holding com pany regim e ? No

I ncent ives ? A deduction of up to 150% as from financial year 2017- 18 ( lim it ed t o 100% as from financial year 2020- 21) is available in respect of capital and revenue expenditure on scientific research conduct ed inhouse by specified industries, and for paym ents m ade to specified organizations for scientific research.

A 100% deduction is allowed for the sum paid to a com pany regist ered in I ndia t hat is carrying on scient ific research activities, to a research association or to a universit y, college or ot her instit ut ion engaged in research in social science or statistical research.

I nvestm ent- linked incentives ( a 100% deduction for capital expenditure other than expenditure incurred on the acquisition of land, goodwill or financial instrum ents) are available for specified activities. As from financial year 2017- 18, an investm ent- linked incentive in the form of 100% deduct ion is available for developing and/ or m aintaining and operating an infrastructure facility ( i.e. a road, highway proj ect, water- supply proj ect, port, etc.) , subj ect to specified conditions.

A deduction of up to 150% (lim ited to 100% as from financial year 2020- 21) is available for expendit ure incurred on a " notified" agricultural extension or skill developm ent proj ect.

Cert ain capit al expendit ure for t he right t o use spect rum for telecom m unication services will be allowed as a deduction over the period of the right to use the spectrum .

A deduction of 100% of the profits derived by an eligible start- up from an eligible business m ay be elected by the taxpayer for any three consecutive assessm ent years out of the seven years beginning from the year of

incorporat ion ( for com panies/ LLPs set up on or aft er 1 April 2016 and before 1 April 2019).

A concessional tax rate of 10% ( plus the surcharge and cess) is applicable on gross incom e arising from royalties in respect of a patent developed and registered in I ndia by a person resident in I ndia. No deduction is allowed for any expenditure or allowance in respect of such royalty incom e.

Undert akings set up in SEZs are exem pt from t ax on t heir export profits, subj ect to com pliance with other condit ions. Ot her t ax holidays are available based on industry and region.

W ithholding tax:

Dividends ? Dividends are not subj ect to withholding tax. However, the com pany paying the dividends is subj ect t o DDT.

As from 1 April 2017, an additional incom e tax of 10% ( plus the surcharge and cess) applies on a gross basis on dividend incom e that is declared, distributed or paid by a dom est ic com pany t o a resident individual, HUF or partnership firm if the aggregate dividend incom e of the recipient exceeds I NR 1 m illion per annum .

I nt erest ? I nterest paid to a nonresident on a foreign currency borrowing or debt generally is subj ect to a 20% withholding tax, plus the applicable surcharge and cess.

A 5% wit hholding t ax rat e, plus t he applicable surcharge and cess, applies to certain types of interest paid to a nonresident , including int erest paid on specific borrowings in foreign currency and interest on investm ents m ade by a foreign institutional investor or a qualified foreign investor in a rupee- denom inated bond of an I ndian com pany, or in a governm ent security.

I f the nonresident does not have a perm anent account num ber ( PAN) , i.e. a t ax regist rat ion num ber, t ax m ust be withheld at the higher of the applicable tax treaty rate or 20% ; however, this does not apply if the paym ents are in the nature of interest and the foreign taxpayer furnishes the prescribed docum ents to the payer.

I f the interest incom e derived by a nonresident does not fulfill cert ain prescribed condit ions for concessional withholding tax rates, a withholding tax rate of 30% ( for individuals and entities other than a foreign com pany) or 40% ( for a foreign com pany) , plus the applicable surcharge and cess, will apply. The rat es m ay be reduced under a tax treaty.

Roya lt ie s ? Royalt ies paid t o a nonresident are subj ect to a 10% withholding tax, plus the applicable surcharge and cess. The rat e m ay be reduced under a t ax t reat y.

I ndia Highlights 2018

I f a treaty applies, but the nonresident does not have a PAN, t ax m ust be wit hheld at t he higher of t he applicable tax treaty rate or 20% ; however, this does not apply if the paym ents are in the nature of royalties and the foreign taxpayer furnishes the prescribed docum ent s to the payer.

Te chnica l se r vice fe e s ? Technical service fees paid t o a nonresident are subj ect t o a 10% withholding tax, plus t he applicable surcharge and cess. The rat e m ay be reduced under a tax treaty.

I f a treaty applies, but the nonresident does not have a PAN, t ax m ust be wit hheld at t he higher of t he applicable tax treaty rate or 20% ; however, this does not apply if the paym ent s are in the nature of technical service fees and the foreign taxpayer furnishes the prescribed docum ents t o the payer.

Branch rem ittance t ax ? No

Other taxes on corporations:

Ca pit a l dut y ? No

Pa yr oll t a x ? The em ployer is responsible for wit hholding tax on salary incom e.

Rea l pr opert y t a x ? Municipalit ies levy propert y t axes ( based on assessed value) and states levy land- revenue t ax es.

Socia l se cur it y ? The em ployer generally cont ribut es 12% of eligible wages per m onth to the provident fund-- 8.33% of the wages (up to I NR 15,000) is applied to the pension fund, with the balance paid to the provident fund ( except in the case of " international workers," where the pension contribution by the em ployer is 8.33% of the wages) . For em ployees j oining t he provident fund on or after 1 Septem ber 2014, the entire em ployer contribution (12% of wages) is applied to the provident fund.

St am p dut y ? Specified instrum ents, transfers of shares in an I ndian com pany in a physical form , transactions involving real estate and other specified transactions ( including a court order for an am algam at ion/ dem erger) in I ndia attract stam p duties that are levied under the I ndian Stam p Act and the stam p acts of the various states ( with rates varying significantly between stat es) .

Tr a nsfe r t a x ? STT is levied on t he purchase or sale of equity shares, derivatives, units in an equity- oriented fund or units of a business trust listed on a recognized stock exchange in I ndia.

Ot her ? An equalization levy of 6% on the am ount of consideration for specified services received by a nonresident wit hout a perm anent est ablishm ent ( PE) in I ndia m ust be withheld by a resident payer or a nonresident payer wit h a PE in I ndia. " Specified services" include online advert ising or any provision for digital

advert ising space, ot her relat ed facilities or services or any other service that m ay be notified by the central governm ent . The incom e subj ect t o levy will not be t axed in the hands of the recipient.

Cust om s dut ies are levied by t he cent ral governm ent , generally on t he im port of goods ( GST as well as non- GST goods) into I ndia, although certain exported goods also are liable to custom s duties.

Anti- avoidance rules:

Tr a nsfe r pr icing ? The t ransfer pricing regim e is influenced by OECD norm s, alt hough t he penalt y provisions in I ndia are stringent com pared to those in cert ain ot her count ries. The definit ion of " associat ed enterprise" extends beyond a shareholding or m anagem ent relationship, since it includes som e deem ing clauses. The t ransfer pricing provisions also cover specified dom estic transactions ( including paym ents to related parties) if the aggregate value of those transactions exceeds I NR 200 m illion in one year.

The pricing of t hese t ransact ions m ust be det erm ined with regard to arm 's length principles, using m ethods prescribed under I ndia's t ransfer pricing rules, which are sim ilar t o t he m et hods prescribed in t he OECD guidelines, wit h an addit ional sixt h m et hod, i.e. an " ot her m et hod." The arm 's lengt h price is det erm ined based on m ult ipleyear data, and based on a range or the arithm etic m ean ( depending on certain prescribed conditions).

The t axpayer is required t o m aint ain det ailed inform at ion and transfer pricing docum ents substantiating the arm 's lengt h nat ure of relat ed- part y t ransact ions. Com panies are also required to subm it a certificate to the tax authorities ( in a prescribed form at) from a practicing chartered accountant that sets out the details of associated enterprises, international transactions, etc., along with the m ethods used to determ ine an arm 's lengt h price. The cert ificat e m ust be filed by t he due dat e of filing the annual tax return, i.e. 30 Novem ber of each year.

The I ndian t ransfer pricing docum ent at ion requirem ent s have been updated to incorporate the specific reporting regim e in respect of count ry- by- count ry report ing and t he m ast er file provided for under t he OECD/ G20 BEPS proj ect.

Where the application of the arm 's length price would reduce the incom e chargeable to tax in I ndia or increase a loss, no adj ustm ent will be m ade to t he incom e or loss. I f a taxpayer that benefits from a tax holiday is subj ect to a transfer pricing adj ustm ent, the benefit will be denied to the extent of the adj ustm ent. Secondary adj ustm ent provisions have been int roduced t hrough Finance Act ,

I ndia Highlights 2018

2017, requiring cash repatriation for any kind of transfer pricing adj ust m ent .

Safe harbor rules provide for the autom atic acceptance of a taxpayer's transfer price that equals or exceeds specified am ounts.

A taxpayer also m ay enter into an advance pricing agreem ent ( APA) .

Thin capit alization ? No

Cont r olle d for e ign com pa nie s ? No

Disclosure requirem ents ? A nonresident with a liaison office in I ndia is required to prepare financial statem ents, annual activity certificates, etc. on its activities and subm it this inform ation to the I ndian tax officer within 60 days from t he end of t he financial year.

Ot he r ? To discourage t ransact ions wit h persons locat ed in j urisdictions that do not effectively exchange inform ation with I ndia, transactions with persons situated in certain j urisdictions designated by the governm ent will be subj ect to the I ndian transfer pricing rules and incom e paid to persons in those j urisdictions will be subj ect to a minimum withholding tax of 30% .

The general ant i- avoidance rule ( GAAR) provisions, w hich were to be im plem ented as from 1 April 2015, were deferred and apply to investm ents m ade after 1 April 2017. The GAAR em powers t he t ax aut horit ies t o declare an arrangem ent an im perm issible avoidance arrangem ent if it was entered into with the m ain purpose of obtaining a tax benefit, and: ( 1) it creates rights or obligations that norm ally would not be created between persons dealing at arm 's length; ( 2) it results, directly or indirectly, in the m isuse or abuse of t he I ncom e Tax Act ; ( 3) it lacks com m ercial subst ance or is deem ed t o lack com m ercial substance; and ( 4) it is carried out in a m anner that would not be used for bona fide purposes. The GAAR will apply to arrangem ents where the tax benefit exceeds I NR 30 m illion. Once t he GAAR is invoked, t ax t reat y benefit s also m ay be denied for the arrangem ent.

Com plia nce for cor por a t ions:

Ta x ye a r ? The t ax year is t he fiscal year ( 1 April t o 31 March) .

Con solida t e d r e t u r n s ? Consolidat ed ret urns are not perm itted; each com pany m ust file a separate return.

Filing r e quir e m e nt s ? Taxes on incom e in a fiscal year usually are paid in the next fiscal year ( " assessm ent " year) . Com panies m ust subm it a final ret urn by 30 Septem ber ( 30 Novem ber for com panies required t o file a cert ificat e on int ernat ional t ransact ions ( see " Transfer pricing" ) ) of the assessm ent year, stating incom e, expenses, taxes paid and taxes due for the preceding tax year. Ret urns for noncorporat e t axpay ers t hat are

required by law to have their accounts audited also are due on 30 Septem ber. All other taxpayers m ust subm it a ret urn by 31 July. Taxpayers claim ing t ax holidays or carrying forward tax losses m ust file their returns on or before the due date.

Com panies m ust m ake four advance paym ent s of t heir incom e tax liabilities during the accounting year, on 15 June ( 15% of t ot al t ax payable) ; 15 Sept em ber ( 30% of total tax payable); 15 Decem ber ( 30% of total tax payable) ; and 15 March ( 25% of t ot al t ax payable) .

Pe n a lt ie s ? Penalt ies apply for failure t o file a ret urn and certificate of international transactions, failure to com ply with withholding tax obligations and under-reporting and m isreporting of incom e.

Ru lin gs ? The Aut horit y for Advance Rulings ( AAR) issues rulings on t he t ax consequences of t ransact ions or proposed transactions with nonresidents. I t also is able to issue rulings in relation to the tax liability of residents in prescribed cases, and on whether an arrangem ent is an im perm issible avoidance arrangem ent . Rulings are binding on the applicant and the tax authorities for the specific t ransact ion( s) . APAs also are possible.

Personal taxation:

Basis ? An individual who is resident and ordinarily resident in I ndia norm ally is taxed on worldwide incom e, subj ect to the provisions of a relevant tax treaty. A person who is not ordinarily resident generally does not pay tax on incom e earned outside I ndia unless it is derived from a business or profession controlled or established in I ndia, or the incom e is accrued or received in I ndia or deem ed to have accrued or been received in I ndia. A nonresident is subj ect to tax only on I ndiansource incom e.

Residence ? An individual is resident in I ndia if he/ she spends at least 182 days in the country in a given year, or at least 60 days if the individual has spent at least 365 days in I ndia in t he preceding four years. For an I ndian citizen leaving I ndia for the purpose of em ploym ent or as a m em ber of the crew of an I ndian ship, and for an I ndian cit izen/ person of I ndian origin working abroad who visit s I ndia while on vacation, the threshold is 182 days in the given year, instead of 60 days. An individual is " not ordinarily resident" if he/ she has been a nonresident in nine out of the 10 preceding years, or has been in I ndia for less than 730 days during the preceding seven years.

Filin g st a t u s ? Each t axpayer m ust file a ret urn; t he concept of j oint filing does not exist in I ndia.

Taxable incom e ? I ncom e from em ploym ent , including m ost em ploym ent benefit s, is fully t axable aft er considering applicable exem pt ions. Profit s derived by an

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download