TAXATION OVERVIEW IN INDIA
The tax structure in India is divided into direct and indirect taxes. While direct taxes are levied on taxable income earned by individuals and corporate entities, the burden to deposit taxes is on the assesses themselves. On the other hand, indirect taxes are levied on the sale and provision of goods and services respectively and the burden to collect and deposit taxes is on the sellers instead of the assesses directly. Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality and the Local Governments. Over the last few years, the Central and many State Governments have undertaken various policy reforms and process simplification towards great predictability, fairness and automation. This has consequently lead to India’s meteoric rise to the top 100 in the World Bank’s Ease of Doing Business (EoDB) ranking in 2018. The Goods & Services Tax (GST) reform is one such reform to ease the complex multiple indirect tax regime in India.
2. Taxation on Foreign Entities
3.1 Liaison Office
3.2 Project Office/ Branch Office
3.4 Company formed in India (Wholly-owned subsidiary/ Joint Venture)
3. Key Tax Incentives in India
Applicability: SEZ units operational before 1st April 2020
Incentive: Deduction of 100% of profits and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years.
Research & Development
Applicability: Companies in respect of any expenditure on R&D in an approved in-house facility
Incentive: Weighted tax deduction of 200% granted to companies
Validity: 31st March 2020
Incentive: To incentivize investment in certain sectors, any capital expenditure incurred for specified businesses is allowed as a deduction in the year in which it is incurred.
Startup India Scheme
Incentive: Tax incentives granted to eligible start-ups are the tax holiday for any consecutive 3 years (from initial 5 years) in respect to 100% of their profits, including fast-tracking of patent applications with 80% rebate.
International Financial Services Centre
Applicability: Caters to customers outside the jurisdiction of the domestic economy. Such centers deal with flows of finance, financial products and services across borders.