BBA Voka 2009 03 Taxation In India

Joost Claeys / Neeru Ahuja

16 March 2009

Taxation in India.

Deloitte. in India

33

Practicing for over 100 years in

India

Integrated service provider in

multiple disciplines

Our Firm

Mumbai Pune

AhmedabadBaroda

New Delhi

Hyderabad

Bangalore Chennai

120 Partners

Kochi

Goa

Kolkata

Coimbatore

Jamshedpur

More than 3500

professionals

44

Enterprise

Risk

Services

Management

Solutions

Tax Advisory

and

Compliance

Financial

Advisory

Audit and

Assurance

“We bring appropriate skills and capabilities to every client assignment.”

Our Range of Services

5

• Legislative Framework

• Regulatory

• Direct Tax

• Indirect Tax

• Other Tax

• Incentives

• Promising Sectors

Contents

Legislative Framework

7

Legislative Framework

Regulatory Revenue

Foreign Investment

Labour Laws

Trade Laws

Foreign Exchange

Direct Tax

Indirect Tax

Corporate Law Other Taxes

Central

Government

State

Government

8

Foreign Investment Regulatory

Foreign Direct Investment

Automatic Route FIPB Approval Route

Cap Sector/ Activity

100%

• Construction Development Projects

(Conditional)

• Non Banking Finance Companies

• Power

• Telecom Equipments

• Wholesale / cash & carry trading

• Trading for Export

• Special Economic Zone

74% • Private Sector Bank

49% •Telecommunication Services

26% • Insurance

Cap Sector/ Activity

100%

• Cigarettes Manufacture

• Courier Services

• Tea Sector

• Trading of items sourced from small

sector

74%• Atomic Minerals

• Telecommunication Services > 49%

51% • Single Brand product retailing

49%

• Asset Reconstruction Co.

• Cable Network

• Direct to Home

26%• Defence Production

• Newspapers

• Retail Trading (except single brand product retailing)

• Atomic Energy

• Lottery Business

• Gambling and Betting

Prohibited Activities

9

Legal Entity structure

Joint Venture Company

Wholly Owned Subsidiary Company

Limited Liability Partnership

Branch Office

Project Office

Liaison Office

10

Business Taxation

Tax

Direct Tax Indirect Tax

Corporate Tax

Wealth Tax

Fringe Benefit Tax

Dividend

Distribution Tax

Value Added Tax Customs Duty

Entry Tax/ Octroi Excise Duty

Central Sales TaxPersonal Tax Service Tax

Direct Taxes

12

Corporate Tax

CompanyEffective Tax Rates

Income > USD 200,000 Income ≤ USD 200,000

Domestic Company 33.99% 30.9%

Foreign Company 42.23% 41.2%

Domestic company is a company incorporated in India or has prescribed

arrangements for declaration and payments of dividend in India

Tax is payable on taxable income derived after adjustment of admissible

and in admissible expenses to the book profits of the company

Unadjusted losses may be carried forward to offset income in the

following eight years and unabsorbed depreciation for unlimited years

Depreciation rates as per Income Tax Rules (Written Down Value)

Asset Building Furniture Machinery Computers Intangibles

Rate 10% 10% 15% 60% 25%

13

Corporate Tax

Minimum Alternate Tax (MAT)

MAT is payable by a company when normal tax is less than 10% of its

book profit

MAT paid may be carried forward to offset income tax payable in the

following seven years

CompanyEffective Tax Rate

Income > USD 200,000 Income ≤ USD 200,000

Domestic Company 11.33% 10.3%

Foreign Company 10.5575% 10.3%

14

Double Taxation Avoidance Agreement (DTAA)

S. NoComparative

Parameters

Indian Income-

tax ActBelgium Treaty*

Mauritius

Treaty*

Netherlands

Treaty*

1 Interest 21.115% 15% 21.115% 10%

2 Dividend Nil 15% 5%, 15% 10%,

3 Royalty 10.5575% 10% 15% 10%

4

Fee for Included

Services/ Fee for

Technical

Services

10.5575% 10% NIL 10%

*Rates applies to a recipient who is a beneficial owner

15

Dividend Distribution Tax

Payable by domestic company on any amounts declared, distributed or

paid as dividend

Company Tax Rate

Domestic Company 16.995%

16

Fringe Benefit Tax (FBT)

Employer FBT Rate

All 33.99%

Foreign Company 31.6725%

Expenses Value

Tour & travel 5%

Entertainment

20%

Hospitality

Conference

Sales promotion

Employees’ welfare

Conveyance

Hotel, boarding and lodging

Repair & running of motor cars

Repair & running of aircrafts

Telephone

Festival celebration

Health club & similar facilities

50%Other club facilities

Gifts

Scholarships

FBT is imposed on value of fringe

benefits that employer provide or

deemed to provide to their

employees

Stock options, air tickets,

contribution to superannuation

funds are valued at 100%

17

Wealth Tax

Payable by all companies @ 1% of

aggregate value of specified assets

Payable on value exceeding USD 30,000 *

in aggregate

Specified Assets

Building other than used

for business purpose

Motor car

Jewellery

Yacht, boats & aircrafts

Urban land

Unaccounted cash

* Assumption : USD 1 = INR 50

18

Critical Issues

Transfer pricing

Tax compliance and documentation

Interest and penalties on non compliance

Relationship with tax authorities

Slow and lengthy tax litigation process

19

Personal Tax

Individual

Resident Non Resident

Resident but

not ordinarily

Resident

Global Income

Income received, deemed to be

received, accrued or deemed to be

accrued in India

Resident if physically spend at least 182 days in India in the fiscal year; or

60 days, if spent at least 365 days in preceding 4 years

Aa Rates of Taxes

Slab (USD)* Tax

0 – 3,000 0

3,000 – 6,000 10.30%

6,000 – 10,000 20.60%

10,000 – 20,000 30.90%

Above 20,000 33.99%

Assumption : USD 1 = INR 50

Indirect Taxes

21

Value Added Tax (VAT)

Tax levied by the States and Union

Territories on goods sold within

their State/ Union Territory

Basic exemption limit prescribed

under respective State VAT

legislations.

Compulsory Registration generally

applicable if annual turnover

exceeds USD 10,000

Tax credit

Available for State VAT paid on intra-

state purchase of goods

Not available for VAT levied by other

States/ Union Territories

Particulars Tax Rate

Specific Products such as

petroleum products, liquor etc.20%-30%

Standard Rate 12.5%

Agricultural, industrial, capital

goods and medicines 4%

Gold & silver ornaments 1%

Assumption : USD 1 = INR 50

22

Entry Tax/ Octroi

Entry Tax/ Octroi levied by certain

States and Union Territories

Levied on movement of goods into

the State from a place outside the

State and from one local area to

another

Specific provisions considerably

differ from State to State

Tax credit generally not available

Particulars Tax Rate

General Rate 2% - 5%

23

Central Sales Tax (CST)

Tax levied by Central government

on inter-state sale of goods

No minimum threshold of sales

Tax credit not available

Particulars Tax Rate

Against specified forms 2%

OtherwiseLocal VAT rate

of selling State

24

Customs Duty

Particulars Rate

General effective Rate 24.42%

Generally levied on import of goods into India. In certain cases on

exports also

Transaction value serves as basis of valuation except when hit by

relationship or other exceptions

Components of custom duty

Basic Duty

Countervailing Duty (‘CVD’)

Additional Duty of Customs (‘ADC’)

Other Duties (Safeguard duty, Anti- Dumping duty)

Duty Manufacturer Service Provider Trader

CVD a a x

ADC a x a

Tax credit of duty paid available to (subject to conditions applicable)

25

Excise Duty

Levied on manufacture of excisable

goods in India

Transaction value generally serves as

basis of valuation

Tax credit of input excise duty

available to

Manufacturer of excisable goods

Provider of taxable services

Particulars Rate

General Rate 8.24%

26

Service Tax

Levied on certain specified services

provided in India

Applicable on 106 services

Specified Services includes

advertising, brokering, business

support, consultancy, construction,

franchise, cargo handling,

warehousing, renting of commercial

property, etc.

Tax credit of input service tax

available to

Manufacturer of excisable goods

Provider of taxable services

Particulars Rate

General Rate 10.3%

Convergence of Excise duty, Central Sales Tax, State VAT and Service Tax

into Goods and Service Tax (‘GST’) proposed by 2010

Effective from 24 February 2009

Other Taxes

28

Other Taxes

Tax Rate of tax Liability

Securities

Transaction Tax0.017% - 0.125%

Payable on purchase or sale of an equity

share/ derivative/ unit of equity oriented

fund entered into a recognized stock

exchange in India

Commodities

Transaction Tax0.017% - 0.125%

Levied on value of taxable commodities

transactions

Banking Cash

Transaction Tax0.1%

Levied on account holder on cash

withdrawn exceeding USD 1000*

*Assumption : USD 1 = INR 50

Incentives

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Incentives

Developer or a Unit in Special Economic Zone (SEZ).

No Customs duty on goods imported

No Excise duty on domestic procurement

No Sales tax/ VAT on purchase of goods

No Income tax

100% Income tax benefit to

Export Oriented Units

Software Technology Park

Infrastructure Projects

Higher depreciation rates for commercial vehicles, computers, etc.

Certain States offer exemption on excise duty on large spectrum of products.

Certain concessional schemes like Export Promotion Capital Goods Scheme

(EPCG) are available under Foreign Trade Policy & Customs Laws.

Impact of Economic Slowdown

32

Impact of economic slowdown on Indian economy

India’s long-term growth story……

Demographics

Reforms Globalization

Virtuous cycle of

Job creation – Income growth

– Savings – Investments –

Higher growth.

Growth

• Reversal in global risk appetite,

resulting in sharp fall in capital inflows

into India

• Cost of capital spike, hurting domestic

demand

• Risk aversion in the domestic financial

system will slow loan growth

• Private consumption will suffer due to

tightening in lending norms and a

weakening job market.

Impacted by Slowdown

33

GDP Growth – India and World

Source: Economic Intelligence Unit

Re

al G

DP

Gro

wth

(%

)

China

-2

0

2

4

6

8

10

12

• Despite slowdown in growth rate, India would relatively fare well

• Overall Outlook: Cautiously optimistic

India

-2

0

2

4

6

8

10

12

US

-2

0

2

4

6

8

10

12

World

-2

0

2

4

6

8

10

12

34

Signs of revival?

• Cement sector grew 9.97% in Dec 2008 over Nov and 11% y-o-y

• Steel, which declined steadily through Sep, Oct and Nov last year

has shown a recovery in Dec 2008 and Jan 2009

• Jan 2009 figures in the passenger vehicles sector show a 32% rise

over Dec 2008, while the increase for commercial vehicles is 23%

• FMCG has had a record growth in y-o-y terms at 26.4% for the

quarter ended Dec

• Food & beverages registered a record 28% growth in the quarter

ended Dec

• The growth in railway freight had declined to 2.25% in October-

November, 2008, but the December 2008 figures show a growth of

7%But, will this be sustained ?

Promising Sectors

36

Promising Sectors

Pharmaceuticals & Health care

Healthcare spending in India is

predicted to rise by 12% per annum.

An estimate suggests that by 2012

healthcare spending may contribute

8% of GDP and provides employment

to over 9 million people.

37

Promising Sectors

Defense

India is planning to increase

its spending by 50% to

almost USD 40 billion in

2009-10, making India’s

military expenditure three

percent of the annual GDP.

38

Promising Sectors

• Logistics & Transport

Logistics in India is poised

for a significant leap

forward in the coming

years. The Logistics

Industry size has touched

the level of USD 90 billion

and is expected to reach

USD 110 billion by 2010.

39

Promising Sectors

• Fast moving consumer goods

(FMCG)

Indian FMCG sector is fourth largest

sector in the economy.

Over a period of time with growth in

GDP, change in lifestyle, buoyant

rural spending, decrease in raw

material price and with established

distribution system across the

country this sector is growing.

Indian FMCG market experienced

16% growth in FY 07-08 and

expected to grow by roughly 20% in

FY 08-09.

40

Promising Sectors

• Telecommunication

The revenue generation from

this sector is expected to

grow by about 25% in FY

2009-10. The telecom

industry is expected to add

another 90 million new

subscribers in 2009.

41

Promising Sectors

• Infrastructure

The Indian government

is aiming to invest

another USD 20.38 billon

over the next two years

in the infrastructure

sector, on top of the USD

320 billion previously

planned. Huge spending

expected on highways,

Ports, Warehousing,

Container freight stations

and Airports

42

Promising Sectors

• Food processing

The ministry of food processing is

taking several steps like demanding

infrastructure status for this sector.

Very good investment opportunities

exist in many areas of food

processing industries, the important

ones being : fruit & vegetable

processing, meat, fish & poultry

processing, packaged, convenience

food and drinks, milk products etc.

43

For further details contact -

Ms. Neeru Ahuja

Deloitte Haskins & Sells

7th Floor, Building 10, Tower B

DLF Cyber City Complex

DLF City Phase - II

Gurgaon – 122 022, Haryana

Phone : +91 (124) 679 -2000

Fax : +91 (124) 679 -2012

E-mail : [email protected]

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