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In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A corporation is resident if it is incorporated in India or if its place of effective management is in India during a certain year.
A partnership firm, LLP, or other nonindividual entity is considered resident in India if any part of the control and management of its affairs takes place in India.

An Indian company is considered resident even if it is controlled from a place located outside the country or if shareholders controlling more than 51% voting power are non-residents.
 

Tax Rate

Corporate tax rate Domestic companies and partnerships: 30%

The effective tax (including surcharge and health and education cess) can range from 31.20% (income below INR 10 million); 33.38% (income between INR 10 and 100 million); and 34.94% (income over INR 100 million)
Foreign companies (and branches): 40%

The effective tax (including surcharge and health and education cess) can range from 41.6% (income below INR 10 million); 42.43% (income between INR 10 and 100 million); and 43.68% (income over INR 100 million)

Surcharge Domestic companies at 7% if income above INR 10 million and 12% if income above INR 100 million; Foreign companies at 2% and 5%, respectively
Health and Education Cess 4% (included in the effective tax rates)
Reduced rate for existing companies
(for companies that will not avail any incentive or exemptions)
22% (plus surcharge of 10% and applicable health and education cess of 4%)
Reduced rate for newly set-up domestic manufacturing companies and companies engaged in generation of electricity (subject to conditions) 15% (plus surcharge of 10% and applicable health and education cess of 4%)
Minimum Alternative Tax (MAT) Applicable at a rate of 15% (plus any applicable surcharge and cess) on the adjusted book profits of companies whose tax liability is less than 15% of their book profits. Any applicable surcharge and cess must be added.

For local companies, the effective tax can range from 15.6% (income below INR 10 million); 16.692% (income between INR 10 and 100 million); and 17.472% (income over INR 100 million).

 
Tax Rate For Foreign Companies
A resident company is taxed on its worldwide income. A non-resident company is taxed only on its Indian-sourced income.
Non-resident companies and branches of foreign companies are taxed at a rate of 40% instead of 30%, plus a health and education cess and a surcharge depending on the turnover value (consult the corporate income rates section for further details).

An equalization levy of 6% on the amount of consideration in excess of INR 100,000 for specified services received by a non-resident without a permanent establishment in India must be withheld by a resident payer or a non-resident payer with a PE in India.

Capital Gains Taxation
Tax treatment varies on long term (assets held for more than 3 years, listed shares and certain securities held for more than 1 year, unquoted shares and real estate held for more than two years) and short-term capital gains. Long-term gains on listed shares and securities are taxed at 10% (with no inflation adjustment) or exempt for the first INR 100,000 if subject to the securities transaction tax (STT). Long-term gains obtained by a non-resident on unquoted shares are also taxed at 10% (with no inflation or exchange rate adjustment). Long-term gains on other types of assets are taxed at 20% with inflation adjustment (plus the surcharge and health and education cess). Short-term gains are taxed at ordinary tax rates or at 15% if subject to the STT (a surcharge and an education cess apply to these gains).
Main Allowable Deductions and Tax Credits

In general, expenses are deductible if they are incurred wholly and exclusively for business or professional purposes, not in the nature of a personal expense, and if they are not capital in nature.
Allowable deductions include wages and salaries, bonuses and commissions, rent, repairs, insurance, royalty payments, certain taxes (sales, municipal, road, property and expenditure taxes, customs duties), interest, lease payments, depreciation, expenditure for materials and scientific research, etc. One-fifth of start-up expenditure is allowed as a yearly deduction, over a period of five years. Bad debts can be allowed as a tax-deductible write-off if they have been written off as irrecoverable.
Any charitable contribution made by a company to any charity is allowed as a tax-deductible expense (conditions apply), in a range from 50% to 100% of the charitable contribution, depending upon the nature of charity. No deduction shall be allowed in respect of contribution made in cash exceeding INR 2,000. If a business has opted for the reduced rate of tax of 22% under new tax regime, it is not allowed to claim deductions of charitable contributions (from FY 2020-21 onwards).
Losses can be carried forward and set off against income from the subsequent year (business and capital losses for 8 years), while carrybacks are not allowed.

Various incentives are provided for companies carrying out specific business activities in India, for example:

  • A 10-year tax holiday on 100% profits for developing, operating or maintaining infrastructure, power or network and distribution facilities
  • A 7-year tax holiday on 100% profits for qualifying production of mineral oil and natural gas
  • A 10-year tax holiday on 100% profits for developing a Special Economic Zone (SEZ)
  • A 5-year tax holiday on 100% profits for operating and maintaining hospitals in rural areas
  • A 5-year tax holiday on 100% profits plus a 5-year tax holiday on 50% profits from export from a new undertaking, satisfying prescribed conditions and set up in an SEZ (available if the activities started before 30 June 2020)
  • A tax exemption up to 100%for financial contributions to research institutes (restricted to certain industries)
  • A concessionary tax rate of 10% (plus surcharge and cess) on income by way of royalty in respect of a patent developed and registered in India by a resident in India ("Patent Box regime").
Other Corporate Taxes
Indian companies distributing or declaring dividends are liable to pay DDT (dividend distribution tax) at 15%. This rate is required to be grossed up; consequently, the effective rate of DDT is 20.36%. However, the Finance Act 2020 has abolished the DDT with effect from 1 April 2020, hence dividends distributed after that date will be taxable in the hands of shareholders (20% for dividends paid to non-residents; at the normal tax rates applicable to the shareholders for dividends paid to residents).

A securities transaction tax is applicable to transactions involving the purchase/sale of equity shares, derivatives, units of equity-oriented funds through a recognised stock exchange, or the purchase/sale of a unit of an equity-oriented fund to any mutual fund. The rates vary from 0.01% to 0.125%, depending upon the type of securities.

A property tax is levied by the governing authority of the jurisdiction in which the property is located, with rates varying from city to city. Stamp duties apply to all legal property transactions, with different rates being set by each state.

Social contributions paid by the employer amount to 12% of the employees’ salary (8.33% are allocated to the Employees’ Pension Fund, capped at INR 15,000/month for Indian employees). A reduced tax rate can apply for individual and Hindu Undivided Family (HUF) taxpayers.

From 1 April 2020, an equalization levy of 2% applies on the consideration from e-commerce supply and services made or provided by an e-commerce operator without a PE in India, and whose sales, turnover, or gross receipts from the e-commerce supply and services are at least INR 20 million during the tax year. Sale of goods or provision of services by an e-commerce operator to an e-commerce participant is subject to a 1% withholding tax.
An equalization levy of 6% on the amount of consideration in excess of INR 100,000 applies with regard to specified services (e.g. online advertising, the provision of digital advertising space, and other related facilities or services) received by a nonresident without a permanent establishment in India. The levy must be withheld by a resident payer or a non-resident payer with a permanent establishment in the country.

Other Domestic Resources
Income Tax Department
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  India South Asia United States Germany
Number of Payments of Taxes per Year 10.9 26.7 10.6 9.0
Time Taken For Administrative Formalities (Hours) 251.9 273.5 175.0 218.0
Total Share of Taxes (% of Profit) 49.7 43.9 36.6 48.8

Source: Doing Business - Latest available data.

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Accounting Rules

 

Accounting System

Accounting Standards
Accounting standards issued by the Institute of Chartered Accountants of India (ICAI), which largely are based substantially and converged with IFRS standards, apply. Financial statements must be prepared annually, in accordance with the accounting standards prescribed under the Companies Act. There are differences between these accounting standards and IFRS.  
India has committed to converge its accounting standards with IFRS (subject to a few carve-outs); these standards are called the Indian Accounting Standards or the Ind AS. For accounting periods commencing on or after 1 April 2016, these standards are mandatory for listed and unlisted companies meeting certain net worth thresholds.
Accounting Regulation Bodies
Institute of Chartered Accounts of India
Accounting Law
- Income Tax Act;
- Indian Companies Act;
- Regulations from Reserve Bank of India (RBI), Securities & Exchange Board of India (SEBI).
Difference Between National and International Standards (IAS/IFRS)
India originally intended to converge with IFRSs in a phased approach beginning in 2011, but transition to Ind AS was postponed. In January 2015, the Indian Ministry of Corporate Affairs (MCA) released a revised roadmap that reflects that, in essence, companies with a net worth of Rs. 500 crore or more have to mandatorily follow Indian Accounting Standards (Ind AS), which are largely converged with International Financial Reporting Standards (IFRSs), from 1 April 2016. Corporates having a net worth of less than Rs. 500 crore but are listed, or in the process of getting listed, and companies with a net worth of Rs. 250 crore or more have to follow the new norms from 1 April 2017. For banking, insurance and non-banking finance companies, which were exempt from the general roadmap, a separate one has was drawn up in January 2016 that will see a phased approach with Ind AS adoption beginning from 1 April 2018.
 

Accounting Practices

Tax Year
The fiscal year begins on 1 April and ends on the 31 March of the following year.
Accounting Reports
'Balance Sheet' and 'Profit & Loss' report.
Companies are required to prepare their financial statements each year, as per the provisions of the Companies Act, and to have them audited by a practicing chartered accountant or a firm of chartered accountants registered with the ICAI. The audited financial statements must be approved by the members in an annual general meeting. All companies are required to file their audited financial statements with the ROC after they have been approved by the members.
Publication Requirements
The "balance sheet" and ‘profit and loss account' need to be published every fiscal year.
 

Accountancy Profession

Accountants
In order to become a certified accountant, one needs to become member of ‘The Institute of Chartered Accountants of India (ICAI)' by passing a 3-tier examination conducted by ICAI. The qualified accountant is then named "Chartered Accountant (CA)".
Professional Accountancy Bodies
ICAI, Institute of Chartered Accounts of India
Member of the International Federation of Accountants (IFAC)
Yes
Member of Other Federation of Accountants
Member of the Confederation of Asian and Pacific Accountants (CAPA)
Audit Bodies
Companies have to seek a statutory auditor to conduct an annual audit of the financial health of their organization. For more information, consult the Institute of Internal Auditors-India and The Institute of Chartered Accountants of India (ICAI)
 
 

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Consumption Taxes

Nature of the Tax
Goods and Services Tax
Standard Rate
Goods and services can be subject to six different rates: 0.25% or 3% (diamonds and other precious stones, gold, silver), 5% (branded cereals, air transport of passengers in economy class, restaurants, construction services of residential apartment), 12% or 18% (electrical apparatus for radio and television broadcasting, accommodation in hotels where value of supply is greater than INR1,000 per unit per day, intellectual property rights, construction services other than residential apartments, banking services), and 28% (motor cars, air-conditioners, aerated drinks, access to race clubs and casinos).
Reduced Tax Rate
Examples of taxable supplies include:

  • 0.25% rate: rough precious and semi-precious stones
  • 3% rate: gold and silver
  • 5% rate: branded cereals; air transport of passengers in economy class; restaurants; construction services of residential apartment
  • 12% and 18% rates: electrical apparatus for radio and television broadcasting; accommodation in hotels where the value of the supply is greater than INR 1,000 per unit per day; intellectual property rights; construction services (other than residential apartments); banking services
  • 28% rate: motor cars; air-conditioners; aerated drinks; access to race clubs and casinos.

A GST compensation cess applies on some demerit and luxury items, including automobiles and tobacco products.

Exclusion From Taxation
Exempt supplies include unbranded cereals; fruits and vegetables; accommodation in hotels where the value of supply is below INR 1,000, per unit per day; renting of residential dwelling for use as residence; the transfer of a going concern.

Export of goods and services are zero-rated and exporters can apply for a refund of input tax. The supplies to a Special Economic Zone for authorised operations are also zero-rated.

Method of Calculation, Declaration and Settlement
All Indian States apply a General Sales Tax (GST) system, which replaced central taxes and duties, local state taxes as well as state cesses and surcharges. GST has three components that apply depending on the transaction: CGST: collected by the Central Government on an intra-state sale; SGST/UTGST: collected by the State Government on an intra-state sale; IGST: collected by the Central Government for inter-state sale.
Registration is state-specific. Two threshold limits of INR 4 million and INR 2 million of aggregate turnover have been prescribed for exemption from registration and payment of GST for suppliers of goods (INR 2 million for the supply of services). Returns have to be filed annually in case of businesses opting for composition scheme; quarterly for taxable persons with turnover below INR 50 million; and monthly (for all other taxable persons). The monthly return in respect of outward supplies generally is due by the 11th day of the following month, with consolidated monthly returns (including information relating both to inward and outward supplies) and tax payments due by the 20th day of the following month. An e-way bill system for the inter and intra-state movement of goods is effective since 2018.
Other Consumption Taxes
The Goods and Services Tax (GST) system replaced the following indirect taxes: Excise duty, CVD/ADC, Service tax, VAT/CST, Entertainment tax, Luxury tax, Lottery taxes, State cesses and surcharges, Entry tax not in lieu of octroi.

Stamp duties and real estate taxes are imposed by municipal authorities and vary across states. A separate securities transaction tax (varying between 0.01% and 0.125%) continues to apply. Some demerit and luxury items are subject to a compensation cess (rates vary).

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Individual Taxes

Tax Base For Residents and Non-Residents

Individuals can be divided according to their type of residential status:

  • Resident in India, which is further divided in to two categories:
    - Resident and ordinarily resident (ROR): physically present for 182 days in a given year, or 60 days in a given year and more than 364 days in the preceding 4 years. He/she is subject to tax in India on their worldwide income
    - Resident but not ordinarily resident (RNOR): non-resident for 9 out of 10 preceding years or stayed in India for 729 days or less in the preceding 7 years. He/she is subject to tax in India only in respect to income that arises or is deemed to arise in India, or is received or deemed to be received in India, or is from a business controlled in or a profession set up in India
  • Non-resident in India (NR): subject to tax in India only in respect to income that arises or is deemed to arise, or is received or deemed to be received in India.
 

Tax Rate

Taxation Income (INR) Progressive Tax Rate up to 30%
Less than 250,000 0% (exempt from income tax and the 4% health education cess; exemption limit raised to INR 300,000 for resident senior citizens with ages 60-80 and INR 500,000 for ages above 80)
250,001 – 500,000 5%
500,001 – 1,000,000 20%
1,000,001 and above 30%
Surcharge In addition to the income-tax, a surcharge (SC) of 10% is to be levied where the total income of individuals is between INR 5 to 10 million; 15% where the total income of individuals is between INR 10 and 20 million; 25% between INR 20 and 50 million; 37% above 50 million
On income arising on account of long-term capital gains, the rate of surcharge would be capped at 15%.
Health and education cess 4% of the income tax and surcharge
Tax rebate Resident individuals are eligible for a tax rebate of the lower of the income-tax or INR 12,500 where the total income does not exceed INR 500,000
New Personal Tax Regime (NPTR) - optional regime effective from 1 April 2020
The taxpayer renounces to certain deductions or exemptions (consult the "Deduction" section)
Less than 250,000 0%
250,000 – 500,000 5%
500,000 - 750,000 10%
750,000 - 1,000,000 15%
1,000,000 - 1,250,000 20%
1,250,000 - 1,500,000 25%
1,500,000 and above 30%
Alternative minimum tax (AMT)
Applicable to business or profession income
18.5% (plus surcharge and health and education cess) on the adjusted total income.
 
Allowable Deductions and Tax Credits
Deductions are allowed for contributions to life insurance; recognised provident funds; national savings certificates; the national savings scheme; income from certain mutual funds and dividends; certain educational expenses; life insurance premium on the life of self, spouse, or any child (up to INR 150,000); health insurance premiums, including those paid for dependent parents. In case of partial withdrawal from the National Pension Scheme by employees, 25% of their own contribution is exempt from tax in the year of withdrawal.

Individuals can claim a deduction for interest paid on a loan taken for the purpose of their higher education or of their relative.

On donation of a certain amount to specifically approved funds, charitable institutions, etc., an individual can claim a deduction of 50% to 100% of the amount donated, subject to certain legal restrictions. Deduction for funds, charitable institutions in excess of INR 2,000 to be allowed only when the donation is not made in cash. Following the COVID-19 outbreak, the government has set up a special "PM CARES Fund", with the donations made to the fund being 100% deductible without any cap.
Expenses relating to business income are deductible.

Following the introduction of the new optional personal tax regime, individuals who opt for such regime renounce to certain deductions or exemptions, including: house rent allowance; leave travel allowance; allowance under section 10(14) of the Income-tax Act (with some exceptions); standard deduction of INR 50,000 and deduction for professional tax; exemption of free food and beverages through vouchers provided by the employer; deduction of interest payment on housing loans for self-occupied property and restrictions on set-off of loss from let out property; relocation allowance; helper allowance; children education allowance; all Chapter VIA deductions of the Income-tax Act available for expenditure by way of employee’s contribution to provident fund, insurance premium, donations, medical premium, etc., except employer’s contribution to a notified pension scheme, such as National Pension Scheme (NPS). For further information, click here.

Special Expatriate Tax Regime
No special exemptions or deductions, as remuneration for foreign expatriates working in India is deemed to be earned as salary in Indian territory. However, foreigners who visit India on short-term business trips can claim an exemption under domestic tax law or a relevant tax treaty.

A foreign worker who is a citizen of a country with which India has signed a social security agreement is not required to contribute to the social security system if he/she is contributing to his/her home country’s social security, either as a citizen or resident, and enjoys the status of "detached worker" for the period, and according to the terms, specified in the relevant agreement.

Dividend income to a non-resident received on or after 1 April 2020 would be subject to tax in the hands of the shareholder at the rate of 20% unless a lower rate applies due to a tax treaty.

Capital Tax Rate
The wealth tax was abolished on 1 Apr 2015. No inheritance tax is levied in India. Real estate tax varies by state. Generally, capital gains from the disposal of capital assets are liable to tax in the tax year in which such assets are sold or transferred.

Any sum of money aggregating to INR 50,000 or more received during the relevant tax year without consideration from any person not being a relative is subject to income tax in the hands of the recipient.
Employees (including foreign nationals) working with an establishment in India that employs 20 or more people are liable to contribute towards the provident fund at the fixed rate of 12% of salary.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Treaties signed with countries for avoidance of double taxation
Withholding Taxes
Dividend: 10% when paid to a resident corporation/individual (7.5% between 14 May 2020 and 31 March 2021)/20% when paid to a non-resident corporation/individual (10% for dividends paid on foreign currency bonds or global depository receipts), plus surcharge and chess.

Interest: 10% when paid to a resident corporation/individual (7.5% between 14 May 2020 and 31 March 2021)/20% when paid to a non-resident corporation/individual. If the interest income derived by a non-resident does not fulfil the conditions prescribed by the law for concessional WHT rates, a rate of 30% (for individuals and entities other than a foreign company) or 40% (for a foreign company), plus the applicable surcharge and cess, will apply.

Royalties: 2% where the royalty is paid to a resident corporation/individual and is in the nature of consideration for the sale, distribution, or exhibition of cinematographic films; otherwise, the rate is 10% (1.5% and 7.5%, respectively, between 14 May 2020 and 31 March 2021)/ 10% when paid to a non-resident corporation/individual, plus surcharge and chess.

The rates may be reduced under a tax treaty.

Bilateral Agreement
The United States and India are bound by a double taxation treaty.

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Latest Update: June 2022