BBA Voka 2009 03 Taxation In India


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BBA Voka 2009 03 Taxation In India

  1. 1. Taxation in India. Joost Claeys / Neeru Ahuja 16 March 2009
  2. 2. Deloitte. in India
  3. 3. Our Firm 120 Partners  Practicing for over 100 years in New Delhi India Jamshedpur Ahmedabad Kolkata Baroda  Integrated service provider in Mumbai Pune multiple disciplines Hyderabad Goa Bangalore Chennai Coimbatore Kochi More than 3500 professionals 3 3
  4. 4. Our Range of Services Management Financial Solutions Advisory Tax Advisory and Compliance Enterprise Audit and Risk Assurance Services “We bring appropriate skills and capabilities to every 4client assignment.” 4
  5. 5. Contents Legislative Framework • Regulatory • Direct Tax • Indirect Tax • Other Tax • Incentives • Promising Sectors • 5
  6. 6. Legislative Framework
  7. 7. Legislative Framework Central Government State Government Regulatory Revenue Foreign Investment Trade Laws Direct Tax Foreign Exchange Labour Laws Indirect Tax Corporate Law Other Taxes 7
  8. 8. Foreign Investment Regulatory Foreign Direct Investment Automatic Route FIPB Approval Route Cap Sector/ Activity Cap Sector/ Activity • Cigarettes Manufacture • Courier Services • Construction Development Projects • Tea Sector 100% (Conditional) • Trading of items sourced from small • Non Banking Finance Companies sector • Power 100% • Telecom Equipments • Atomic Minerals 74% • Wholesale / cash & carry trading • Telecommunication Services > 49% • Trading for Export • Single Brand product retailing • Special Economic Zone 51% • Asset Reconstruction Co. • Cable Network • Private Sector Bank 49% 74% • Direct to Home •Telecommunication Services 49% • Defence Production 26% • Newspapers • Insurance 26% • Retail Trading (except single brand product retailing) • Atomic Energy Prohibited • Lottery Business Activities • Gambling and Betting 8
  9. 9. Legal Entity structure  Joint Venture Company  Wholly Owned Subsidiary Company  Limited Liability Partnership  Branch Office  Project Office Liaison Office 9
  10. 10. Business Taxation Tax Direct Tax Indirect Tax Corporate Tax Fringe Benefit Tax Value Added Tax Customs Duty Dividend Wealth Tax Entry Tax/ Octroi Excise Duty Distribution Tax Personal Tax Central Sales Tax Service Tax 10
  11. 11. Direct Taxes
  12. 12. Corporate Tax Effective Tax Rates Company 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) Building Asset Furniture Machinery Computers Intangibles 10% 10% 15% 60% 25% Rate 12
  13. 13. Corporate Tax  Minimum Alternate Tax (MAT) Effective Tax Rate Company Income ≤ USD 200,000 Income > USD 200,000 Domestic Company 11.33% 10.3% Foreign Company 10.5575% 10.3%  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 13
  14. 14. Double Taxation Avoidance Agreement (DTAA) Comparative Indian Income- Mauritius Netherlands S. No Belgium Treaty* Parameters tax Act Treaty* Treaty* Interest 1 21.115% 21.115% 10% 15% Dividend 2 Nil 15% 5%, 15% 10%, Royalty 3 10.5575% 10% 15% 10% Fee for Included Services/ Fee for 4 10.5575% 10% NIL 10% Technical Services *Rates applies to a recipient who is a beneficial owner 14
  15. 15. Dividend Distribution Tax Company Tax Rate Domestic Company 16.995%  Payable by domestic company on any amounts declared, distributed or paid as dividend 15
  16. 16. Fringe Benefit Tax (FBT) Expenses Value  FBT is imposed on value of fringe Tour & travel 5% benefits that employer provide or deemed to provide to their Entertainment employees Hospitality Conference Sales promotion Employer FBT Rate Employees’ welfare All 33.99% 20% Conveyance Foreign Company 31.6725% Hotel, boarding and lodging Repair & running of motor cars  Stock options, air tickets, Repair & running of aircrafts contribution to superannuation Telephone funds are valued at 100% Festival celebration Health club & similar facilities Other club facilities 50% Gifts Scholarships 16
  17. 17. Wealth Tax  Payable by all companies @ 1% of Specified Assets aggregate value of specified assets Building other than used for business purpose  Payable on value exceeding USD 30,000 * Motor car in aggregate Jewellery Yacht, boats & aircrafts Urban land Unaccounted cash * Assumption : USD 1 = INR 50 17
  18. 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 18
  19. 19. Personal Tax Rates of Taxes Aa Individual Slab (USD)* Tax 0 – 3,000 0 Resident but 3,000 – 6,000 10.30% Resident Non Resident not ordinarily Resident 6,000 – 10,000 20.60% Income received, deemed to be 10,000 – 20,000 30.90% Global Income received, accrued or deemed to be accrued in India Above 20,000 33.99% Assumption : USD 1 = INR 50  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 19
  20. 20. Indirect Taxes
  21. 21. Value Added Tax (VAT) Particulars Tax Rate  Tax levied by the States and Union Territories on goods sold within Specific Products such as 20%-30% their State/ Union Territory petroleum products, liquor etc. Standard Rate 12.5%  Basic exemption limit prescribed Agricultural, industrial, capital under respective State VAT 4% goods and medicines legislations. Gold & silver ornaments 1%  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 Assumption : USD 1 = INR 50 21
  22. 22. Entry Tax/ Octroi Particulars Tax Rate  Entry Tax/ Octroi levied by certain States and Union Territories General Rate 2% - 5%  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 22
  23. 23. Central Sales Tax (CST)  Tax levied by Central government Particulars Tax Rate on inter-state sale of goods Against specified forms 2%  No minimum threshold of sales Local VAT rate Otherwise of selling State  Tax credit not available 23
  24. 24. Customs Duty  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 Particulars Rate  Basic Duty General effective Rate 24.42%  Countervailing Duty (‘CVD’)  Additional Duty of Customs (‘ADC’)  Other Duties (Safeguard duty, Anti- Dumping duty)  Tax credit of duty paid available to (subject to conditions applicable) Duty Manufacturer Service Provider Trader x a a CVD x a a ADC 24
  25. 25. Excise Duty  Levied on manufacture of excisable Particulars Rate goods in India General Rate 8.24%  Transaction value generally serves as basis of valuation  Tax credit of input excise duty available to  Manufacturer of excisable goods  Provider of taxable services 25
  26. 26. Service Tax  Levied on certain specified services Particulars Rate provided in India General Rate 10.3%  Applicable on 106 services Effective from 24 February 2009  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 Convergence of Excise duty, Central Sales Tax, State VAT and Service Tax into Goods and Service Tax (‘GST’) proposed by 2010 26
  27. 27. Other Taxes
  28. 28. Other Taxes Tax Rate of tax Liability Payable on purchase or sale of an equity Securities share/ derivative/ unit of equity oriented 0.017% - 0.125% Transaction Tax fund entered into a recognized stock exchange in India Commodities Levied on value of taxable commodities 0.017% - 0.125% Transaction Tax transactions Banking Cash Levied on account holder on cash 0.1% Transaction Tax withdrawn exceeding USD 1000* *Assumption : USD 1 = INR 50 28
  29. 29. Incentives
  30. 30. 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. 30
  31. 31. Impact of Economic Slowdown
  32. 32. Impact of economic slowdown on Indian economy India’s long-term growth story…… Impacted by Slowdown • Reversal in global risk appetite, Demographics resulting in sharp fall in capital inflows into India Growth • Cost of capital spike, hurting domestic demand Reforms Globalization • Risk aversion in the domestic financial system will slow loan growth • Private consumption will suffer due to tightening in lending norms and a Virtuous cycle of weakening job market. Job creation – Income growth – Savings – Investments – Higher growth. 32
  33. 33. GDP Growth – India and World US World India China 12 12 12 12 Real GDP Growth (%) 10 10 10 10 8 8 8 8 6 6 6 6 4 4 4 4 2 2 2 2 0 0 0 0 -2 -2 -2 -2 • Despite slowdown in growth rate, India would relatively fare well • Overall Outlook: Cautiously optimistic Source: Economic Intelligence Unit 33
  34. 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 ? 34
  35. 35. Promising Sectors
  36. 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. 36
  37. 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. 37
  38. 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. 38
  39. 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. 39
  40. 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. 40
  41. 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 41
  42. 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. 42
  43. 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 : 43
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