Doing Business With India

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Doing Business with India
Free Guide for Foreign Companies Doing Business in India, Investing in India,
Outsourcing to India, Trading with India
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Basic Information about India
Legal System and Laws in India
Corporate Taxes in India
Tax Incentives for Exporters
Double Taxation Treaties
Transfer of Technology
Repatriation
Privatization in India
Litigation in India and Dispute
Resolution in India
Arbitration in India
Joint Ventures in India by Foreign
Investor
Establishing a Subsidiary in India
by Foreign Investor

FDI in India

Some Basic Facts about India

American Companies Doing
Business in India see also our FDI
in India Sector wise Guide for more
information on various conditions of
investing in India. Also see
Withholding Tax Rates For Foreign
Companies Doing Business In India
Under The Tax Treaties & the Joint
Ventures in India. Also see Entry
Strategies in India for Foreign
Investors. A foreign company
planning to enter India, is required
to meet all requirements of
incorporating in India as required
by domestic Indian businesses. In
addition foreign companies are
required to seek governmental
approval before investing in India.
Some approvals are automatic, RBI Approvals - though application
is required for those approvals.
Special Permission - FIPB Approvals
- could be obtained to invest over
and above the regular percentage
allowed.

Did you know that India.....

Latest Update















is the world's second largest small car market
India Further Opens Up Key Sectors
is one of only three countries that makes its own
to Foreign Investment
supercomputers
is one of six countries that launches its own satellites
one hundred of the Fortune 500 have R & D facilities in India
has the second largest group of software developers after the
U.S.
lists 6,500 companies on the Bombay Stock Exchange (only
the NYSE has more)
is the world's largest producer of milk, and second largest
producer of food, including fruits and vegetables
is a world economic power, with growth over the past few
years averaging 8%
is the world's fourth largest economy, based on purchasing
power parity



sends more students to the U.S. A. colleges than any other country in the world (In 2007, over
84,000 Indian students enrolled in the U.S. A.)
 has the world's second largest pharmaceutical industry after China
 has a middle class estimated at 300 million out of a total population of 1 billion
 with its large base of English speaking skilled human resource, it is most sought after destination
for business process outsourcing, Knowledge processing etc.
 is the second largest English-speaking scientific, technical and executive manpower in the world
 produces more than 900 movies a year - significantly more than the USA
 has become increasingly attractive to foreign investors in various sectors
 its low costs and huge, English-speaking, workforce have made it popular with multinationals for
work including manufacturing and call centers.
 provides many tax exemptions to companies set up in Special Economic Zone
 provides many tax incentives available to IT companies, business process outsourcing and KPO
companies
 has a stable political system based on parliamentary democracy
 has a common law legal system with English as a court language
 is emerging as a major market and investment destination.
India is the largest country in South Asia and the seventh largest in the world. China, Nepal and Bhutan
are the neighboring countries in the north, Bangladesh and Burma in the east and Pakistan and
Afghanistan in the west. In the south the country tapers off into the Indian Ocean. India is the second
most populous country in the world, with over one billion people. India is the largest democracy in the
world. English is extensively used for business and is understood almost all over India. The Indian Rupee
(International symbol is INR) is the country’s currency. India is committed to a free economy after having
an economy controlled by licensing until 1991. India has become a member of the WTO and is
disbanding quantitative restrictions on imports.

FACTS ABOUT INDIA















Full name: Republic of India
Population: 1.2 billion
Capital: New Delhi
Most-populated city: Mumbai (Bombay)
Area: 3.1 million sq km (1.2 million sq miles)
Major languages: Hindi, English and at least 16 other official languages
Major religions: Hinduism, Islam, Christianity, Sikhism, Buddhism, Jainism
Life expectancy: 62 years (men), 65 years (women) (UN)
Monetary unit: 1 Indian Rupee = 100 paise
Main exports: Agricultural products, textile goods, gems and jewellery, software
services and technology, engineering goods, chemicals, leather products
GNI per capita: US $720 (World Bank, 2006)
Internet domain: .in
International dialing code: +91
Law Firm for India: www.madaan.com

Indian Legal System & Major Commercial Laws of
India
India is a common law country with a written constitution which guarantees individual and property rights.
There is a single hierarchy of courts. Indian courts provide adequate safeguards for the enforcement of
property and contractual rights. However, case backlogs often result in procedural delays. Most of the
laws are codified. Regulations and policies fill in the details.
Major bodies of law in India affecting foreign investment are the Foreign Exchange management Act of
1999 ("FEMA"), the Companies Act of 1956, the Industries Act of 1951, the Monopolies and Restrictive
Trade Practices Act of 1969 and the New Industrial Policy of 1991. Foreign collaboration and equity
participation in India is regulated by the Foreign Exchange management Act of 1999. The Industries
(Development Regulation) Act of 1951 governs industrial regulation. The Companies Act of 1956
regulates corporations and their management in India. The Monopolies and Restrictive Trade Practices
Act of 1969 ("MRTP") governs restrictive and fair trade practices. The New Industrial Policy of 1991
("NIP") which lays down the policy and procedure for foreign investment has liberalized and simplified the
investment procedures. The major changes introduced by NIP are as follow:

1. NIP brings about a streamlining of procedures, deregulation, de-licensing, a vastly expanded role
for the private sector and an open policy towards foreign investment and technology.

2. Foreign investors are allowed to hold more than 50% equity ownership in most of the sectors, and
100% percent equity ownership in some sectors.
3. Foreign Institutional Investors ("FII's) from reputable institutions (like pension funds, mutual funds)
may participate in the Indian capital markets.
4. Joint ventures with trading companies and imports of secondhand plants and machinery are
allowed.
5. Monopoly and restrictive trade practice restraints (i.e., antitrust laws) have been eased.
6. Customs duties have been slashed considerably; duty-free imports are allowed in some cases.
7. The rupee is completely convertible; 100% of foreign exchange earnings can be converted at free
market rates.
8. Export policies have been liberalized.
9. The Foreign Exchange Regulation Act has been amended to encourage foreign investments in
India.
10.
A tax holiday is available for a period of 5 continuous years in the first 8 years of
establishing exporting units.
11.
A tax holiday for up to 5 to 8 years is available and 100% equity participation is allowed
for the power projects in India.
12.
Concessions in tax regime are available for foreign investors in high-tech areas.

Corporate Income Tax

Rates
Revenue accruing to foreign companies (including royalty and technical services fees) from providing
services concerning the exploration or production of petroleum or natural gas is subject to a maximum tax
on a deemed profit of 10% of gross revenue.
Foreign companies engaged in the execution of turnkey power project contracts approved by the
government and financed by international programs are subject to a maximum tax on a deemed profit of
10% of gross revenue.
The corporate income tax effective rate for domestic companies is 35% while the profits of branches in
India of foreign companies are taxed at 45%. Companies incorporated in India even with 100% foreign
ownership, are considered domestic companies under the Indian laws. For more details check our
Tax Rates page
Non-Export Incentives
India offers a wide range of concessions to investors to provide incentives for economic and industrial
growth and development. India's tax rates may not be one of the lowest in the world, but a careful tax
planning keeping in mind the tax holidays and the following general tax incentives reduce the taxes
considerably:

No corporate taxes are levied for a period of five years for projects set up for domestic power generation
and transmission and also for projects in Electric Hardware Technology Park Schemes.
Deduction of preliminary and preoperative expenses incurred in setting up a project
Complete tax exemption on profits from exports of goods
Full or partial exemption of foreign exchange earnings on construction projects, hotel and tourism related
services, royalties, commission, etc.
Liberal depreciation allowances
Deduction of capital research and development expenditures
New industrial undertakings may deduct 25% of their gross total income for eight years

Tax Incentives for Exporters
The New Export-Import Policy of 1992 provides substantial tax incentives for investments in Export
Oriented Units ("EOU's") and industries located in the Export Processing Zones ("EPZ's"). Automatic
approvals are given by the Secretariat for Industrial Approval for setting up 100% Export Oriented Units
("EOU"). Incentives and facilities available under the EOU scheme include concessional rent for lease of
industrial plots, preferential power allocation and supply, exemption from import duty for capital goods
and raw materials for power sector industries as well as for trading companies primarily engaged in export
activity.

There are six EPZ's or free trade zones located in different parts of the country. These zones are
designed to provide internationally competitive infrastructure facilities and duty-free and low cost
environment. Various monetary and non-monetary incentives are granted which include import duty
exemption, complete tax holiday, decentralized "single window clearance," etc.
Twenty-five percent of goods manufactured in EPZ's are permitted to be sold in the domestic market. No
excise duty is payable on such items and customs duties on imported components is 50% of normal
rates. Major exporters are allowed to operate bank accounts abroad to facilitate trade. Companies that
sell in the domestic market as well as international markets may deduct export earnings from their tax
liabilities.
Exporters and other foreign exchange earners have been permitted to retain 25% of their foreign
exchange earnings in foreign currency. For 100% Export Oriented Units and units in Export Processing
Zones, Electronic Hardware Technology Parks, retention up to 50% is allowed.
Other incentives include:










Duty-free imports of raw materials and components.
Tax holiday for a period of 5 continuous years in the first 8 years from the year of commencement
of production.
Exemption from taxes on export earnings even after the period of tax holiday.
Exemption from central and state taxes on production and sale.
Permission to install machinery on lease.
Freedom to borrow self-liquidating foreign currency loans at the prime rate of interest.
Inter-unit transfers of finished goods among exporting units.
Decentralized single-window clearance of proposals concerning units in Export Processing
Zones.
EOU/EPZ units may export through Export Houses, Trading Houses and Star Trading houses.

See also Tax Rates in India | Withholding Tax Rates For Foreign Companies Doing
Business In India Under The Tax Treaties

Double Taxation Treaty
India has entered into tax treaties with a number of countries including, Australia, Belgium, Canada,
Denmark, France, Germany, Indonesia, Japan, Korea, Mauritius, Singapore, the United Kingdom and the
United States. These treaties endeavor to avoid double taxation and attract know- how and technology. In
many treaties the withholding tax on royalties and fees for technical services emanating from India is
lower than the general tax rate. A careful planning and corporate structuring can reduce the tax
obligations considerably. The following treaties have been successfully used by international investors to
reduce their tax obligations in India and in their home countries:
(a) India - U.S.A. Tax Treaty

The Indo-U.S. tax treaty considerably reduces the
withholding tax in India for royalties, fees for
technical services, and for interest paid to the US
banks and financial institutions. The withholding tax
on dividends arising out of India is 15%, if the parent
company owns at least 10% of the voting stock. The
withholding tax on royalties and technical services
fees is at the rate of 15%. The capital gains is taxed
at a rate of 20%. The withholding tax on rental of
equipment and interest paid to U.S. banks and
financial institutions is at the rate of 10%. All these
rates are lower than the regular withholding tax rates.
(b) India - Mauritius Tax Treaty

T

he the best prospect sectors for U.S. exports

to India, according to US Department of
Commerce, are:
Airport & Ground Handling
Computer and Peripherals
Education Services
Electrical Power Generation, Transmission &
Distribution Equipment
Food Processing & Cold Storage Equipment
Machine Tools
Medical equipment
Mining & Mineral Processing Equipment
Oil & Gas Field Machinery
Pollution Control Equipment
Safety and security equipment
Telecommunication Equipment
Textile Machinery
Water
_____****_____

The withholding tax rates for dividends and capital
gains can be reduced further by a careful corporate
structuring and tax planning. The Indo-Mauritius tax
treaty offers reduced withholding taxes for
companies incorporated in the island country of
Mauritius. Recently some U.S. companies have
invested in India through offshore subsidiaries
incorporated in Mauritius. For companies
incorporated in Mauritius there is no withholding tax
on capital gains in India and the withholding tax on dividends is only 5%. The companies incorporated in
Mauritius, at present, can opt not to pay any tax in Mauritius.

See also Tax Rates in India | Withholding Tax Rates For Foreign Companies Doing
Business In India Under The Tax Treaties

Transfer of Technology Agreements in India and
Approvals
Approvals
The Reserve Bank of India ("RBI") accords automatic permission for foreign technology agreements in
high priority industries up to 5% royalty for domestic sales and 8% for exports, subject to total payment of
8% of sales over 10 year period from date of agreement or 7 years from commencement of production. In
addition, lump-sum technology payments up to Rs. 1 crore, i.e., (Rs. 10 million) are permitted under the
automatic approval system. The prescribed royalty rates are net of taxes and are calculated according to
standard procedures.
Subject to the aforesaid guidelines, automatic approval is available in non-high priority industries, if no
foreign exchange is required for any payment.
Governing Laws

Transfer of technology agreements must be subject to the laws of India. These agreements can be
subject to arbitration under the rules of international institutions like the International Chamber of
Commerce (the "ICC"). Arbitration can take place in India or abroad. India is a party to the 1958 New York
Convention on Enforcement of Arbitration Awards. Foreign awards are, therefore, enforceable in India.
Under Indian law, upon termination of the transfer of technology agreement after its 7-10 year period, the
technology is deemed to be perpetually licensed to the Indian party for use in India. Special rules apply to
the transfer of technology to Indian government companies.

Repatriation of Investments & Profits from India
One of the biggest concerns for foreign investors is how to get dollars out of India? Historically, it is not a
problem to repatriate investments and profits from India. The Overseas Private Investment Corporation
("OPIC"), a U.S. government backed insurer of foreign commercial dealings, has never had to pay a claim
due to India's failure to provide foreign exchange. Dividends, capital gains, royalties and fees can be
repatriated easily with the permission of the Reserve Bank of India. In a short, specified list of consumer
goods industries, dividend balancing is required against export earnings.
In case of an exit decision, the overseas promoter can repatriate his share after discharging tax and other
obligations. He can also disinvest his share either to his Indian partner, to another company, or to the
public. Even during the so-called worst period no foreign company left India without proper and due
compensation. Problems do arise when people and businesses try to go around the rules or from
inexperience.
Rupee, the Indian currency, is convertible for the current account. It means that:
Repatriation of foreign exchange at the existing market rates has become easier.
Exporters can retain 25% of total receipts in foreign currency accounts to meet requirements such as
travel, advertising, etc.
Foreign exchange will be available at market rates for all imports except specified essential items.
Foreign exchange requirements for private travel, debt servicing, dividend or royalty payments and other
remittances may also be obtained from banks or exchange dealers at the current market rate.
The system has the advantages of completely bypassing bureaucratic controls and freeing importers from
delays and inefficiencies.

Privatization, Private & Public Sector in India
Almost all the agriculture sector in India is in private hands. Most of the industrial sector is open to private
participation. The number of industries reserved for the public sector has been reduced to 6. The
industries reserved for public sector are arms and ammunition, defense equipment, defense aircraft and
warships, atomic energy, coal lignite, mineral oils, and sulfur and diamonds. All other areas are open to
the private sector and private sector participation on a selective basis even in the still restricted areas is
being considered. In practice railways, post and telegraph, shipbuilding, oil exploration and mineral
industries are mostly government owned. A process of disinvestment of government holdings in selected
public enterprises has been initiated. The government plans to form a new corporation, Indian Railways
Catering Tourism Corporation (IRCTC). IRCTC will take over catering work and enter into tourism projects
and trains in collaboration with private sector.

Litigation in India
India is a common law country. Most of the courts use English as the court language.
There is single hierarchy of courts in India with the Supreme Court of India at the top.
See also Arbitration in India | Litigation in India | Dispute Resolution in India |
International Commercial Arbitration | UNCITRAL Model Law on International
Arbitration

Arbitration in India & International Commercial
Arbitration
Recently India enacted the Arbitration and Conciliation Act, 1996 ("New Law"). The New Law is based on
the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International
Commercial Arbitration ("Model Law"). Among others, the objectives of the New Law are to harmonize the
Indian arbitration law with the Model Law and establish an internationally recognized legal framework for
arbitration, consolidate the laws on domestic and international arbitration and conciliation, and
enforcement of foreign awards. Another important purpose of the New Law is to encourage arbitration as
an alternate dispute resolution process and avoid prolonged judicial process.
See also Arbitration in India | Litigation in India | Dispute Resolution in India |
International Commercial Arbitration | UNCITRAL Model Law on International
Arbitration

Establishing Wholly-owned Subsidiary in India by
Foreign Investors
India allows, in many sectors, setting up of subsidiaries in India which are wholly owned by
foreign investor, including foreign companies.
There are two ways to form subsidiaries in India:



Automatic route; and
Special Permission Route

In certain sectors such as information technology, development of integrated townships,
mass rapid transport services, export oriented manufacturing, 100% ownership by foreign
investors is allowed, subject to certain terms and conditions. However, they have to apply
for and obtain permission from government authorities. In certain other sectors FDI up to a
specified percentage is permitted under the automatic route, See also FDI in India Sector
wise Guide | FDI in Small Scale Sector in India Further Liberalized
In certain other sectors FDI up to 100 is permitted with prior approval of the Foreign
Investment Promotion Board (“FIPB”)/Secretariat of Industrial Approvals (“SIA).
The obvious advantages of a subsidiary are total control over funding, management and
profit share of the business. However, the flip side is that in a subsidiary where the total
management is foreign, the advantage of local knowledge of customs and methods is
lacking from very outset.
See also Formation of Subsidiary in India | Starting a Business in India | Opening
Branch in India | Incorporating company in India | Procedure for Formation of
Company in India
See also Government Approvals for Investing in India | Entry Strategies in India
for Foreign Investors | FIPB Approval for Foreign Investment in India | RBI
Approvals for FDI in India

Joint Ventures in India by Foreign Investors
Joint Venture companies are the most preferred form of corporate entities for investment in India. There
are no separate laws for joint ventures in India. The companies incorporated in India, even with up to
100% foreign equity, are treated the same as domestic companies. Foreign companies are also free to
open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a
subsidiary or a joint venture company. The liability of the parent company is also greater in case of a
branch office.

The Government has outlined 37 high priority areas covering most of the industrial sectors. Investment
proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks.
An application to the Reserve Bank of India in the form FC (RBI) is required. The application can be made
either by the Indian party or the foreign party. Existing companies having foreign equity holding and
desiring to increase it to 74% can also obtain automatic approval if they are in priority areas. Besides the
37 high priority areas, automatic approval is available for 74% foreign equity holdings setting up
international trading companies engaged primarily in export activities.
Approval of foreign equity is not limited to 74% and to high priority industries. Greater than 74% of equity
and areas outside the high priority list are open to investment, but government approval is required. For
these greater equity investments or for areas of investment outside of high priority an application in the
form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within 6
weeks. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries,
electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's").
For major investment proposals or for those that do not fit within the existing policy parameters, there is
the high-powered Foreign Investment Promotion Board ("FIPB"). The FIPB is located in the office of the
Prime Minister and can provide single-window clearance to proposals in their totality without being
restricted by any predetermined parameters.
Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal
washeries, luxury railways, and telecommunications. The entire hydrocarbon sector, including
exploration, producing, refining and marketing of petroleum products has now been opened to foreign
participation. The Government had recently allowed foreign investment up to 51% in mining for
commercial purposes and up to 49% in telecommunication sector. The government is also examining a
proposal to do away with the stipulation that foreign equity should cover the foreign exchange needs for
import of capital goods. In view of the country's improved balance of payments position, this requirement
may be eliminated.
Selection of a good local partner is the key to the success of any joint venture. Personal interviews with a
prospective joint venture partner should be supplemented with proper due diligence. Once a partner is
selected generally a memorandum of understanding or a letter of intent is signed by the parties
highlighting the basis of the future joint venture agreement. Before signing the joint venture agreement,
the terms should be thoroughly discussed to avoid any misunderstanding at a later stage. Negotiations
require an understanding of the cultural and legal background of the parties. See also Joint Ventures
in India | Joint Venture Agreements | Outsourcing Agreements | Outsourcing to
India | Formation of Subsidiary in India | Starting a Business in India | Opening
Branch in India | Incorporating company in India | Procedure for Formation of
Company in India

Starting Business in India

Contact us for Incorporating In India

.

Besides incorporation there are many other formalities in establishing a business in India.

The following chart contains typical formalities including incorporating a private limited company in
India.

Nature of Procedure in India

Procedure Number

Duration (days)

Filing the proposed name of company for approval to the Registrar of Companies (ROC); Get the
Memorandum and Articles of Association vetted by the ROC and printed 1
7
Make an application to the Superintendent of Stamps or an authorized bank requesting for stamping of
the Memorandum of Association and Articles of Association.
2
1
Present the required documents along with the registration fee to the Registrar of Companies to get the
certificate of incorporation
3
9
Obtain a company seal 4

3

Visit the UTI Investors Services Limited to obtain a Permanent Account Number 5

7

Obtain a Tax Account Number for income taxes deducted at source from the Assessing Office in the
Income Tax Department
6
7*
Register under Shops and Establishment Act

7

2*

Register for value added tax (VAT) before the Sales Tax Officer of the ward in which the company is
located 8
12*
Register for Profession tax

9

2*

Register with Employees' Provident Fund Organization 10
Register with ESIC (medical insurance) 11

2*

1*

Filing for Government Approval before RBI/FIPB for Foreigners and NRI's12
Totals: 12

15*

35

Type of Business Entities in India for Starting Business in India

Private Limited Company
IT is mandatory for foreign investors to obtain governmental approval for incorporating in India or
forming a joint venture in India. In some sectors certain restrictions apply. Proper legal advice must be
obtained before incorporating in India to ascertain the eligibility and applicable restrictions.
_____****_____

A private company is a company which has the following characteristics:

shareholders’ right to transfer shares is restricted;

the number of shareholders is limited to fifty; and

an invitation to the public to subscribe to any shares or debentures is prohibited.

Public Limited Company Limited Liability Partnership Law soon in India

A new law to allow "Limited Liability Partnership" (LLP) in India is expected to be introduced in the
Parliament of India.
_____****_____

A public company is defined as a company which is not a private company. The following conditions
apply only to a public company:

It must have at least seven shareholders.

A public company is not authorized to start business upon the grant of the certificate of incorporation.
In order to be eligible to commence business as a corporation, it must obtain another document called
"trading certificate".

It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting
business.

A public company is required to have at least three directors.

It must hold statutory meetings and obtain government approval for the appointment of the
management.

There are several other provisions contained in the Companies Act 1956 which are applicable only to
public companies and should be consulted.

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch
offices in India for the purposes of export/import of goods, rendering professional or consultancies
services, R&D, promoting technical or financial collaborations, representing the parent company, acting
as buying/selling agents, rendering services in IT and development of software, rendering technical
support to the products supplied by the parent/group companies, foreign airline/shipping companies.
Branch offices could be established with the approval of the government of India and may remit outside
India profit of the branch, subject to RBI guidelines after payment of applicable Indian taxes.

Procedure for Formation of Company in India

Liaison Office/Representative Office

A Liaison Office could be established with the approval of the government of India. The role of Liaison
Office is limited to collection of information, promotion of exports/imports and facilitate
technical/financial collaborations.

Liaison office cannot undertake any commercial activity directly or indirectly.

Project Office

Foreign companies planning to execute specific projects in India can set up a temporary project/site
offices in India for carrying out activities only relating to that project. The Government of India has now
granted general permission to foreign entities to establish project offices subject to specified conditions.

Note: Foreign investors are required to seek governmental approval before investing in India. Some
approvals are automatic, though application is required for those approvals. Special Permission could be
obtained to invest over and above the regular percentage allowed. See our FDI in India Sector wise
Guide for more information on various conditions of investing in India. See the Procedure for Formation
of Company in India. Also visit the Joint Ventures in India

Tax Rates in India
Withholding Taxes for Foreign Companies under the Tax Treaties |
Entry Strategies in India for Foreign Investors | Previous Tax rates
before 2008 Budget

Individual Income Tax Rates

Taxable Income
Over

Tax Rate
Not Over

0

Rs. 160,000 1

0

Rs. 160,001

Rs. 300,000

10%

Rs. 300,001

Rs. 500,000

20%

Rs. 500,001

above

30% 2

1. Rs. 190,000 for women and Rs. 240,000 for seniors. 2. An education cess of 3% is applicable. 3. (a)
Tax exemption on interest in Non-Resident (external) Account and on interest payable by a scheduled
bank to Non-Resident Indians (NRI's). (b) Tax exemption on the interest payable by a scheduled bank
to a non-resident or a person who is not ordinarily resident on deposits in foreign currency where the
acceptance of such deposits by the bank is approved by the RBI. .

Domestic Corporate & LLP Income Taxes Rates
Effective Tax Rate with
surcharge & ed. cess

Tax Rate
Domestic Corporations / Private
Limited Companies

30%

33.99% 1

Domestic Corporations / Public
Limited Companies

30%

33.99% 1

Limited Liability Partnership
(LLP's)

30%

30.9% 2

1. A surcharge of 10% of the income tax is levied, if the taxable income exceeds Rs. 1 million.
Educational cess is also added. 2. An Educational Cess is added to the basic tax rates. Surcharge is not
applicable to LLP. Unlike LLP's in the USA where they are pass-through entities for tax purposes, in
case of LLP's in India, they are partially pass-through entities for tax paurposes. In India tax an LLP is
required to pay income tax on 40% of its income; since an LLP is allowed to pay the balance of 60% as
renumerations to it partners. Partners of an LLP are required to pay tax on the amount paid to them.
Besides, LLP's are not required to pay dividend distribution tax or Minimum Alternate Tax (MAT).

3. All companies incorporated in India are deemed as domestic
Indian companies for tax purposes, even if owned by foreign
companies. Contact us for Incorporating in India
Foreign Corporate Income Tax Rates

Withholding Tax Rate for nontreaty foreign companies

Withholding Tax Rates for the
USA Companies Doing Business
in India under the India USA
Tax Treaty

Dividends

20%

15% 1

Interest Income

20%

15% 2

Royalties

30%

20% 2

Technical Services

30%

20% 2

Other income

55%

55%

1. Inter-corporate rates where there is minimum holding. There tax rates are applicable under the
India USA Tax Treaty. For other countries the tax rates are different under the tax treaties between
India and other countries, including Australia, Austria, Bangladesh, Belgium, Brazil, Belarus, Bulgaria,
Canada, China, Cyprus, Czechoslovakia, Denmark, Finland, France, Germany, Greece, Hungary,
Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Libya, Malta, Malaysia, Mauritius, Mongolia,
Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Philippines, Poland , Qatar , Romania,
Singapore, South Africa , South Korea , Spain , Sri Lanka , Sweden, Switzerland, Syria, Tanzania,
Thailand, Trinidad & Tobago, Turkmenistan, Turkey , U.A.E. , U.A.R., U.K., U.S.A., Russian Federation,
Uzbekistan, Vietnam and Zambia
2. 10% or 15% in some cases.
3. Withholding tax is charged on estimated income, as approved by the tax authorities.
4. There are other favorable tax rates under various tax treaties between India and other countries..

Wealth Tax
Net Taxable Wealth
Over

Tax Rate
Not Over

0

Rs.1,500,000

0

Rs.1,500,000

above

1%

Wealth tax is levied on non-productive assets whose value exceeds Rs.1.5 million. Productive assets like
shares, debentures, bank deposits and investments in mutual funds are exempt from wealth tax. The
non-productive assets include residential houses, jewelry, bullion, motor cars, aircraft, urban land, etc.
Foreign nationals are exempt from wealth tax on non-Indian assets. In arriving at the net taxable
wealth, any debt incurred in acquiring specified assets is deductible.

Gift Tax
Net Taxable Gift
Over

Tax Rate
Not Over

0

Rs.30,000

0

Rs.30,000

above

30%

Gifts to dependent relatives at the time of marriage are exempt upto Rs.100,000. Foreign nationals
are exempt from gift tax on non-Indian assets.

Tax on cash withdrawal from banks
Withdrawn in the 2008 Budget. [0.1% tax used to be levied on cash withdrawals of over Rs 25,000 from
banks on a day. (Yes, this is true)]

US$1=Indian Rs. 4 app.
All rates as per on the date of update.
For Updated Tax Rates and International Tax Treaties Contact us

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.123485309 .

Corporate Income Tax in India
For companies, income is taxed at a flat rate of 30% for Indian companies.
Foreign companies pay 40%. An education cess of 3% (on the tax) are
payable, yielding effective tax rates of 33.99% for domestic companies and
41.2% for foreign companies.
From the tax year 2005-06, electronic filing of company returns is
mandatory.

Fringe Benefit Tax
Fringe Benefit Tax is a tax payable by companies against benefits that are
seen by employees but cannot be attributed to them individually. This tax is
paid as 33.99% of the benefit, which is only a percentage of the actual
amount paid.
Some fringe benefits and their taxable rates are mentioned:
Fringe Benefit
Medical reimbursements

Taxable percentage

Effective Tax Rate

20%

6.8%

Telephone bills

20%

6.8%

Employee Stock Options (Difference between
market value and purchase price on vesting
date)

100%

33.99%

From April 1, 2007 , Employees Stock Option Plan (ESOP) or Sweat Equity
has also been brought within ambit of fringe benefit tax. Section
115WB(1)(d) specifies that any ESOP will attract Fringe Benefit Tax, and the
benefit is equal to the difference between the price paid and the fair market
value of the share, as determined by the Board. Tax is levied on the date of
vesting of such options. "Fair Market Value" is not yet defined by the Income
Tax Department.

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