Nuances of Doing Business In India
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To discuss the ongoing changes in the Indian Economy, Laws and Policies which are catalyzing the process of India becoming an attractive investment destination and to walk through the process of "Doing Business in India”.
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Nuances of Doing Business In India
- 1. DOING BUSINESS IN INDIA A Guide for Foreign Companies Transacting in India 19th January 2017
- 2. Agenda To discuss the ongoing changes in the Indian Economy, Laws and Policies which are catalyzing the process of India becoming an attractive investment destination and to walk through the process of "Doing Business in India”. 2
- 3. 3 ▹Introduction: India as an Investment Destination ▹How to setup Business in India and Routes for Investment into India ▹How to do Business in India: Compliance and Regulatory Obligations ▹Know the taxes you’re paying in India and whether you should be paying them ▹Demonetization and Impact of Other Changes on the Indian Economy Detailed Agenda
- 4. 8th November 2016 The Decisive day for American, Indian and World Economy as a whole 4
- 5. Introduction: India as an Investment Destination ▸The government has taken a series of measures such as easier governing and fund raising norms, clarification of tax related matters and higher FDI limits, thereafter numerous initiatives have been launched to help in ease of doing business in India. ▸Campaigns like Make in India have had a major impact in bring India into the manufacturing globe. 5 Source: Haver Analytics, World Bank
- 6. FDI 30%Total FDI investments India received during April - September 2016 rose 30 per cent year-on-year to US$ 21.6 billion 6
- 7. “Data for April - September 2016 indicates that the services sector attracted the highest FDI equity inflow of US$ 5.29 billion, followed by telecommunications – US$ 2.79 billion, and trading – US$ 1.48 billion. Most recently, the total FDI equity inflows for the month of September 2016 touched US$ 5.15 billion.
- 8. SOURCE OF FDI Equity Inflows : April – September 20168 $ 1.44 billion $ 5.85 billion $ 4.68 billion $ 2.79 billion
- 9. FDI- Expected Growth Rate ▸ Investments in India are expected to grow at a compound annual growth rate (CAGR) of 20-24 percent touching US $6-8 billion by 2025, from US $1 billion in 2015 9
- 10. 1. How to setup Business In India 10
- 11. As a holder of American Global Depository Receipts (“ADR”) and Global Depository Receipts (“GDR”s) Types of Investment for a Non Resident Entity As a registered Foreign Institutional Investor (“FII”) Foreign Direct Investment (“FDI”) As a registered Foreign Venture Capital Investor (“FVCI”) under the Venture Capital route 11
- 12. Foreign Investors Establishing Business in India (FDI) ▸Foreign investors planning to set up their business in India are required to seek consent from the Government before investing in India. 12
- 13. Automatic Route Under automatic route the Foreign Direct Investment, to the extent permitted, does not require any prior approval either by the Government or RBI. There are sectoral caps defined under the Automatic Route. The investors are only required to notify the Regional offices of RBI within 30 days of receipt of inward remittances and file the required documents with the respective office within 30 days of issue of shares to foreign investors. Foreign Investors Establishing Business in India 13
- 14. Foreign Investors Establishing Business in India 14 Sectoral Caps under the Automatic Route
- 15. Government Approvals for Foreign Companies Doing Business in India Banking and NBFC's Activities in Financial Services Sector Housing & Real Estate Development Sector. Atomic Energy & Related Projects Print Media Petroleum Including Exploration/Refinery/M arketing Venture Capital Fund and Venture Capital Company Defense and Strategic Industries Broadcasting Civil Aviation Investing Companies in Infrastructure & Service Sector Agriculture (Including Plantation) Postal Services 15 Automatic route unavailable for the following sectors
- 16. Approval Route ▸ FDI in sectors not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). ▸ Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Foreign Investors Establishing Business in India 16
- 17. Foreign Company (Liason/ Project/ Branch Office) Forms of Business Organisation Partnership (Including LLPs) Proprietorship Indian Company (Joint Ventures & Wholly Owned Subsidiaries) 17
- 18. Foreign Investors Establishing Business in India 18 * RBI = Reserve Bank of India | ROC = Registrar of Companies
- 19. Simplified: Incorporation of a Private Limited Company SPICe – Simplified proforma for Incorporating Company Electronically 19 e-Memorandum of Association e-Articles of Association. The Integrated Form INC-29 has been replaced with SPICe Form INC-32 and as such the Form INC-29 has been completely removed from the MCA portal. . It has other added benefits wherein the DINs get allotted to those Directors who do not hold a valid DIN and also the Company’s PAN, TAN and ESIC registration can also be obtained easily in a single step. *DIN = Director Identification Number | PAN = Permanent Account Number | TAN = Tax deduction Account Number
- 20. 2. How to do Business in India Compliance and Regulatory Obligations 20
- 21. Federal Tax Structure in India India is a Federal Republic and the power to make laws is divided between the Central & State Governments. 21 This list is not exhaustive and is only for representational purposes
- 22. Compliance and Regulatory Obligations Whether the company is a Private company or a Public company, a number of compliances are required to be carried out post incorporation. 22
- 23. Compliance and Regulatory Obligations Compliances ONE TIME: Application for PAN/TAN, Opening of Bank Account (s) Issuance and Stamping of Share Certificates Periodic: Accounts and Audit , Holding of Share Holders/Board Meetings, Annual Corporate Filings Filing of Income Tax Returns and Other Returns under applicable laws 23
- 24. Compliance and Regulatory Obligations Labour and Employment Regulations Labour Welfare Fund & Professional Tax Maternity Payment & Prevention of Sexual Harrasment 24 Minimum Wages Act Employees Provident Fund & Insurance Gratuity and Bonus
- 25. Compliance and Regulatory Obligations FOREIGN EXCHANGE LAWS (FEMA + CUSTOMS + COFEPOSA) FEMA, along with it’s rules and regulations governs foreign exchange transactions in and from India. For transactions on both Current & Capital Account reporting/prior permissions are needed from RBI. Annual Filings of Investment into India to be made 25
- 26. Compliance and Regulatory Obligations Competition Law Anti- Competitive Agreements Combination 26 Abuse of Dominant Position
- 27. Compliance and Regulatory Obligations Environmental and Consumer Legislation Environment Act Consumer Protection Act 27 Public Liability Insurance Act
- 28. 3. Know the taxes you’re paying in India And are they applicable to you ? 28
- 29. Tax Structure 29
- 30. Corporation Tax : Rate ▸ The rate is 30% for domestic companies and 40% for foreign companies and their branches. ▸ This rate is besides applicable surcharge & cess (if any). ▸ Special Exemptions given from Taxation – SEZs, StartUps, Industries setup in Notified Areas ▸ The Union Government has committed to reduce the rate to 25% in a staged manner by 30
- 31. Corporation Tax : DDT & MAT A company is liable to pay Dividend Distribution Tax (hereinafter “DDT”) on the amounts declared or distributed as dividend at the rate of 15% (plus applicable surcharge and education cess) In case tax liability of a company is less than 18.5% of its book profits, such book profits are deemed to be ‘taxable income’, and such company is liable to pay a Minimum Alternate Tax at 18.5% (plus applicable surcharge and education cess). 31
- 32. 32 Source: FPI Survey PWC
- 33. Tax Withheld at Source ▸ Any person responsible for making a payment to a non- resident, which is chargeable to tax under the ITA, must withhold tax at the applicable rates. ▸Tax Residency Certificates are a must to claim DTAA benefits for Foreign Companies. 33
- 34. Foreign Tax Credit Foreign Tax Credit Foreign tax paid may be credited against Indian tax on the same profits Credit is limited to the amount of Income Tax payable on foreign income 34
- 35. Foreign Tax Credit 35 Foreign Tax Credit - Types of Tax Relief Unilateral Tax Relief - Relief as per domestic income tax provisions e.g. Section 91 of the Income-tax Act 1961 Bilateral Tax Relief - Relief as per mutual covenants / DTAAs (Article 23 read with domestic income-tax provisions) Relief via DTAAs generally more beneficial than the domestic tax laws DTAA restrict a country’s ability to unilaterally override provisions in DTAA to the detriment of taxpayers Contracting state to decide which method to use Exemption Method ; or Credit Method (Direct Credit | Indirect Credit (Underlying Tax Credit) | Special Credit (Tax Sparing}
- 36. GAAR (Background) ▸ In 2007, Vodafone entered the Indian market by buying Hutchison Essar, the deal took place in Cayman Islands. The Indian government claimed over US $2 billion were lost in taxes. In September 2007, a notice was sent to Vodafone. Vodafone claimed that the transaction was not taxable as it was between two foreign firms. The government claimed that the deal was taxable as the underlying assets involved were located in India. 36
- 37. “The regulation allows tax officials to deny tax benefits, if a deal is found without any commercial purpose other than tax avoidance. It allows tax officials to target participatory notes. Under GAAR, the investor has to prove that the participatory note was not set to avoid taxes. It also allows officials to deny double taxation avoidance benefits, if deals made in tax havens were found to be avoiding taxes.
- 38. “The Central Board for Direct Taxes (CBDT) has announced that the General Anti-Avoidance Rule (GAAR) will start from April 1, 2017 to check tax evasion and avoidance.
- 40. Recent Amendments: Service Tax on OIDAR Services ▸ On 9 November 2016, India’s Ministry of Finance amended Service Tax rules related to Online Information and Database Access or Retrieval services (OIDAR) will require Non- Resident Service Providers to pay Service Tax when they provide Services to clients for Non-Business purposes. 40
- 41. OIDAR 41 S. No. Service Provider Service Recipient Is Service Tax applicable? Person liable Indian Foreign Indian Foreign 1 - OIDAR provider Government/Individual (personal use) - Yes Foreign Service provider 2 - OIDAR provider Companies, Proprietor, Partnership etc. - Yes Indian Service recipient 3 OIDAR provider - - Any person No - 4 OIDAR provider NA Any person NA Yes OIDAR provider Automatic route unavailable for the following sectors
- 42. “Central Government had recently announced the procedure for online payment of service tax through foreign banks providing big relief to the foreign tax payers.
- 43. Recent Amendments: Equalization Levy ▸ Equalization levy was made effective from 1st June 2016 @ 6% to be deducted from amount paid to a non-resident (not having any permanent establishment in India) for specified services received by i. Resident who is running business in India OR ii. Non-resident having a permanent establishment in India. 43
- 44. Specified services include Online Advertisement Any provision for digital advertising space Any other services as may be notified 44
- 45. Key Points ▸As it happens in case of remittances in India, it would be routine work for an Indian service recipient to ask the nonresident service provider for a ‘No PE’ declaration so as to decide on the applicability of the Equalization Levy. ▸Online advertising services are separately subject to Service Tax @ 15% on a reverse charge basis which is to be collected and discharged by the Indian service recipient. 45
- 46. Advance rulings ▸ AAR rulings are equivalent to US private letter rulings. Like private rulings, they can be obtained for prospective transactions, and are only binding on the parties involved. 46
- 47. Advance rulings The applicant already has a case pending 47 The issue involves determinatio n of fair market value of any property The issue relates to a transaction which is designed prima facie for avoidance of tax.
- 48. “Similar to the AAR for income tax determination, an Authority for Advance Rulings (Central Excise, Customs and Service Tax) [AAR(CECST)] has also been set up to give binding rulings, in advance, on indirect tax matters concerning a foreign investment venture in India.
- 49. Goods & Services Tax (GST) ▸ GST is a game changing reform for the Indian Economy which will reduce the cascading effect of tax on the cost of goods & services leading to a complete overhaul of the current indirect tax system. 49
- 50. “Foreign Investors are reluctant to invest in India due to country’s regulatory and bureaucratic complexities which is going to change after the implementation of GST.
- 51. Goods & Services Tax (GST) 51
- 52. Goods & Services Tax (GST) Advantages of GST are: ▸Unified Market which would facilitate seamless movement of goods and reducing transaction cost of business. ▸Logistics cost would fall as collection of taxes at state-borders will reduce. ▸Reduction in Logistics cost will lower the inventories and working capital needs, hence improving asset utilization and increase efficiency. 52
- 53. “It will be simpler for Foreign Companies to comprehend the tax norms and not have to file tax with multiple departments but one web-based form. GST would integrate the economy and provide a larger base for foreign companies to operate in. With reduced taxation, exports from India would increase and be more cost competitive in the global markets
- 54. 4. Demonetization Impact on Indian Economy 54
- 55. Demonetization ▸ Demonetization is a foremost step in assuring the Foreign Investors that India is moving away from corruption and towards a cashless economy where it is easy to carry out business and no bureaucracy is required to set up a new business. 55
- 56. ▸Moving towards Digital Economy: Technology has reached Tier 2 and Tier 3 cities giving companies a larger consumer base to target ▸Removal of Petty Corruption: Bureaucracy & Corruption at lower levels would be eliminated ▸Decrease in Real-Estate prices: Demonetization has reduced property prices by up to 30% which will reduce cost for Foreign Investors setting up their base in India. Impact of Demonetization - Advantages 56
- 57. Impact of Demonetization - Advantages ▸Increase in online transactions: As reported by PayTM, the cash crunch has led a huge upward spike in online transactions. ▸Shift Towards Organized Players: Curbing cash transactions will impact smaller players, leading to a move towards the organized segment 57
- 59. WHAT THE BIG PLAYERS ARE UPTO
- 60. Investments/ developments Pepsi plans to invest Rs 500 crore (US$ 72.8 million) to set up another unit in Maharashtra to make mango, pomegranate and orange-based citrus juices, while biotechnology giant Monsanto plans to set up a seed plant in Buldhana district of Maharashtra. Ford Motor Co.plans to invest Rs 1,300 crore (US$ 189.2 million) to build a global technology and business centre in Chennai, which will be designed as a hub for product development, mobility solutions and business services for India and other markets. JW Marriott plans to have 175- 200 hotels in India over the next four years. 60 Vistra Group Ltd has acquired IL&FS Trust Company Ltd, India’s largest independent corporate trust services provider, which will enable Vistra to expand the platform to provide a broader suite of corporate and fiduciary services and thereby gain a foothold in the Indian corporate services market. . Apple Inc has started its first development centre outside the US in Hyderabad, which will employ over 4,000 people and focus on Apple Maps, the company’s digital maps and navigation service. The first Incredible India Tourism Investment Summit 2016, which was organized from September 21-23, 2016, witnessed signing of 86 Memoranda of Understanding (MoUs) worth around Rs 15,000 crore (US$ 2.18 billion), for the development of tourism and hospitality projects.
- 61. 6. Government Initiatives The Union Cabinet has approved a scheme allowing the grant of Permanent Residency Status (PRS) to foreign investors based on a minimum investment of Rs 10 crore (US$ 1.5 million) within 18 months or Rs 25 crore (US$ 3.6 million) within 36 months, which is expected to encourage foreign investment and facilitate Make in India program. The Department of Industrial Policy and Promotion (DIPP) has allowed 100 per cent foreign direct investment (FDI) in asset reconstruction companies (ARC) under automatic route, which will help to tackle the issue of declining asset quality of banks.
- 62. CASE STUDIESSUCCESS AND DOWNFALLS 62
- 63. “▸Volvo India Pvt. Ltd. came to Bengaluru, India in 1998 and started shop with an investment of about USD 70 million. ▸By 2013 it had expanded to around 100% and now has 76% of the luxury bus market in India.
- 64. Case Study: Success Story ▸What Volvo did successfully was it sold the concept of luxury bus travel and not just its buses. Volvo was willing to depart from the norms and challenge the way the industry worked at that time. In India, bus length was capped at 11m but Volvo got that changed. To persuade the operators, the sales team at Volvo demonstrated how Volvo would be more reliable and profitable. To make the deal more lucrative Volvo offered service support for the entire bus and not just the individual parts. Volvo did not reach the top by cutting prices or toning down its products, it developed and nurtured the market and then waited for it to mature and then reap the profits Volvo is now a synonym for luxury bus travel in India. 64
- 65. Case Study: Downfalls WALMART ▸For Walmart the biggest issue was their proposed business model which did not fit in with the regulations. ▸Lobbying is illegal in India and there was significant outcry when Walmart disclosed that it had been indulging in India specific lobbying. IKEA ▸The Swedish retail giant entered India in 2007 but could not open its stores because of infrastructural & economic laws pertaining in India at that time. ▸IKEA wanted to open cafes in its store making it a multi-brand retail which was not permitted by the Indian Government and further stalled the proposal. 65
- 67. 67 Thanks !
Editor's Notes
- In a short span of time India has emerged as one of the most attractive investment destinations. The Indian government’s favorable policy regime and robust business environment have ensured FDI is flowing into India.
- According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April - September 2016 rose 30 per cent year-on-year to US$ 21.6 billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.
- During April - September 2016, India received the maximum FDI equity inflows from Mauritius (US$ 5.85 billion), followed by Singapore (US$ 4.68 billion), Japan (US$ 2.79 billion), (US$ 1.62 billion), and USA (US$ 1.44 billion).
- Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Liaison office/ Representative office Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. The approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. Branch Office A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI). Branch Office on "Stand Alone Basis" Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
- 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.
- Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.
- Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.
- Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Liaison office/ Representative office Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. The approval for establishing a liaison office in India is granted by the Reserve Bank of India (RBI). Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. Branch Office A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI). Branch Office on "Stand Alone Basis" Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
- Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.
- So, now there are 2 ways to incorporate a company: INC-7, DIR-12 & INC-22 INC-32 (formerly INC-29), INC-33 & INC-34 SPICe or Form INC-32 can help incorporate a company with a single application for: reservation of name incorporation of a new company and/or application for allotment of DIN. (Maximum three Directors are allowed for using this integrated form for filing application of allotment of DIN while incorporating a company.)) SPICe Form INC-32, the following types of companies can be incorporated in India: Part I Company Producer Company (only if 2 agricultural corporations are promoters, if there are minimum 10 promoters as applicable for individuals, then normal incorporation process has to be followed). Section 8 Company (was not available in INC-29) New Company – Public or Private or OPC The major addition to the SPICe Form INC-32 is relating to provision for entering name approval that was already obtained by the applicant by filing INC-1 – thereby assuring the name. Previously there was no such provision in the e-Form INC-29, thereby there were chances for resubmissions leading to delay in the process for incorporation.
- The application can be made concerning transactions which have already been undertaken or are proposed to be undertaken. Companies incorporated in India and foreign corporations with a branch or liaison office in India are regulated by the provisions of the Companies Act. The management of a company is entrusted to its Board of Directors (“Board”) who, subject to the Articles of Association, have full powers to act on behalf of the Company within the provisions of the Companies Act. A company can appoint executive, nonexecutive and independent directors. An executive director can be a managing director or a whole time director. There is no restriction on appointing foreign nationals as directors, however, every company is required to have at least one resident director. All directors regardless of nationality or residence must obtain a Directors Identification Number (“DIN”). All listed companies are required to appoint up to half or one third of the Board, as the case may be, as independent directors and every public company with a paid-up capital of ` 50 million is also required to have an audit committee. The Companies Act requires companies to hold a minimum of four board meetings and at least one shareholders’ meeting as an Annual General Meeting (“AGM”) in a calendar year.
- The Employees’ State Insurance Act, 1948 (“ESI Act”) deals with insurance of employees in India. The main objective of the ESI Act is to provide workers whose monthly wages do not exceed a stipulated amount, medical and sickness benefits, maternity benefits (to the women workers), benefits to dependents of workers and compensation to them for fatal and other work related injuries. The Minimum Wages Act, 1948 provides for minimum statutory wages and the basis for fixing them. These minimum wages are fixed in order to curb exploitation. The Payment of Gratuity Act, 1972 provides for payment of gratuity to an employee who has rendered continuous service for five (5) years or more and is linked to the number of years in service. A statutory right of gratuity has also been given to all employees whose services are terminated on account of superannuation, retirement, resignation, death, or disablement. The Payment of Bonus Act, 1965 provides that every employee shall be entitled to be paid a bonus by his employer in an accounting year (as per the provisions contained in the Act), provided that such employee has worked in the concerned establishment for a period not less than thirty (30) working days during the course of that year. India has specific legislation dealing with the pensions for employees’. Under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 ( “PF” Act), an employer employing more than twenty (20) employees earning less than a stipulated wage has to set up a compulsory contributory fund, which has to be paid to the employee following his retirement, or is paid to his dependents in the case of employee’s premature death. In 2008 this legislation was also extended to an ‘International worker’ and every international worker employed with an establishment in India to whom the PF Act applies, would be required to become a member of PF fund unless he/she qualifies as an “excluded employee”.
- The application can be made concerning transactions which have already been undertaken or are proposed to be undertaken. Companies incorporated in India and foreign corporations with a branch or liaison office in India are regulated by the provisions of the Companies Act. The management of a company is entrusted to its Board of Directors (“Board”) who, subject to the Articles of Association, have full powers to act on behalf of the Company within the provisions of the Companies Act. A company can appoint executive, nonexecutive and independent directors. An executive director can be a managing director or a whole time director. There is no restriction on appointing foreign nationals as directors, however, every company is required to have at least one resident director. All directors regardless of nationality or residence must obtain a Directors Identification Number (“DIN”). All listed companies are required to appoint up to half or one third of the Board, as the case may be, as independent directors and every public company with a paid-up capital of ` 50 million is also required to have an audit committee. The Companies Act requires companies to hold a minimum of four board meetings and at least one shareholders’ meeting as an Annual General Meeting (“AGM”) in a calendar year.
- agreements with respect to production, supply, Page 12 distribution, storage, acquisition or control of goods, or provision of services, which cause or are likely to cause an appreciable adverse effect on competition in a relevant market in India may be considered to be anti-competitive. The Competition Act proscribes enterprises from abusing their dominant positions. “Dominant Position” means the position of strength enjoyed by an enterprise in the relevant market in India, which enables it to operate independently of competitive forces prevailing in that relevant market, or affects its competitors or consumers or the relevant market in its favour. A ‘Combination’ includes an enterprise formed by an acquisition of control, shares, voting rights, or assets of an enterprise, a demerger of an undertaking or the merger or amalgamation of enterprises. To classify as a ‘Combination’ the transaction must exceed the prescribed thresholds of assets and turnover.
- Consequences of non-compliance with relevant provisions of these statutes and rules framed there under are provided in the respective statutes. Violation of provisions attract a monetary fine and (or) imprisonment of the persons responsible. In some extreme cases, licenses and consents are liable to be cancelled. There is a three-tiered structure of forums established under the CPA: the District Consumer Disputes Redressal Forums (“District Forums”), the State Consumer Disputes Redressal Commissions (“State Commissions”) and the National Consumer Disputes Redressal Commission (“National Commission”). The jurisdiction of these forums to entertain a complaint depends on the value of the goods and services and the compensation claimed.
- A person is taxable on the profits and gains derived from the transfer of a capital asset. Capital gains tax in India is payable at different rates depending on the holding period of the capital asset. There are also differences depending on whether the transferor is an Indian resident or a non-resident. For shares, capital gains tax rates also differ if the shares are listed on the Indian stock exchange. Capital assets held for more than 36 months are considered as long-term capital assets. Shares held for more than 12 months are considered long-term capital assets. The 12-month holding period applies only to specific securities, including shares in a company. Other kinds of securities such as debentures, options, or bonds must be held for more than 36 months to qualify for the long-term capital gains tax rates. Long-term capital gains are generally taxable at 20% and short-term capital gains at 30%. Indexation benefits are available to Indian residents on long-term capital gains except where the long-term capital asset is a bond or debenture other than capital indexed bonds issued by the government. Short-term capital losses can be offset against short-term and long-term capital gains, while long-term capital losses can only be offset against long-term capital gains. Further, capital gains tax is payable in the tax year in which the capital asset is transferred, regardless of the year in which consideration is actually received. This could lead to a situation in which contingent or future consideration may be subject to tax in the year of transfer of the capital asset.
- Any person responsible for making a payment to a non-resident, which is chargeable to tax under the ITA, must withhold tax at the applicable rates. The language in the ITA is wide enough to also include a non-resident. Therefore, if the capital gains earned by a non-resident from sale of shares in an Indian company are taxable in India, there is a liability on the buyer (irrespective of the buyer’s location) to withhold and deposit the tax with the Indian Government. Failure to deduct tax could result in the buyer being considered as an assessee-in-default, and the buyer may be liable to pay interest and a penalty in addition to the amount of tax in arrears.
- Therefore the scope of equilisation levy seems to be restricted to online advertisements in case of B2B transacations only since no other category has been notified as of now. Finance Minister in his budget speech has stated that the Equalisation Levy was aimed at taxing Business to Business (B2B) ecommerce transactions. Therefore, the scope of the levy may be expanded to cover a larger gamut of digital goods and services as the time progresses.
- Therefore the scope of equilisation levy seems to be restricted to online advertisements in case of B2B transacations only since no other category has been notified as of now. Finance Minister in his budget speech has stated that the Equalisation Levy was aimed at taxing Business to Business (B2B) ecommerce transactions. Therefore, the scope of the levy may be expanded to cover a larger gamut of digital goods and services as the time progresses.
- This means Tax Payers having bank account in some notified banks are not required to open a Bank Account in India and service tax can be directly paid to Government using Online banking facility of the foreign notified banks. Government had notified 7 banks for this purpose.
- OIDAR Services includes electronic services such as :- advertising on the internet; providing cloud services; provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet; providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network; online supplies of digital content (movies, television shows, music, etc.); digital data storage; and online gaming.
- OIDAR Services includes electronic services such as :- advertising on the internet; providing cloud services; provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet; providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network; online supplies of digital content (movies, television shows, music, etc.); digital data storage; and online gaming.
- Impact on Foreign service providers OIDAR service providers located outside India shall be most affected by these amendments, as all B2C transactions they enter into with non-assessee online recipients shall be subject to Service tax, resulting, in registrations, payment of taxes and compliances in India. Detailed procedures have been prescribed for managing compliances. Foreign service providers need to check if they are providing services to Indian non-assessee recipients and if that is the case, they would need to take registration in India. There are loads of websites operating in selling digital content over the internet and these websites generally have no presence in India. All such websites would now need to take Service tax registration, pay taxes (subject to threshold limits) and file returns. Foreign OIDAR service providers would now need to ask the service recipients their Service tax registration nos. In case the recipient doesn't have/provide the STC, the liability to charge Service tax shall vest with the service provider.
- This means Tax Payers having bank account in some notified banks are not required to open a Bank Account in India and service tax can be directly paid to Government using Online banking facility of the foreign notified banks. Government had notified 7 banks for this purpose.
- Therefore the scope of equilisation levy seems to be restricted to online advertisements in case of B2B transacations only since no other category has been notified as of now. Finance Minister in his budget speech has stated that the Equalisation Levy was aimed at taxing Business to Business (B2B) ecommerce transactions. Therefore, the scope of the levy may be expanded to cover a larger gamut of digital goods and services as the time progresses.
- Return – form 1 by 30th june The equilisation levy so deducted during any calrendar month shall be paid by every assessee to the credit of the Central Government by the seventh day of the month immediately following the said calendar month.
- AAR rulings are equivalent to US private letter rulings. Like private rulings, they can be obtained for prospective transactions, and are only binding on the parties involved. However, while private rulings involve a process that is more consultative (involving the request of a determination letter by the relevant revenue official), AAR rulings involve an adversarial process, where counsels from both sides argue before the AAR, subsequent to which a ruling is given.
- However, no application is rejected without giving the applicant an opportunity of being heard.
- Any person responsible for making a payment to a non-resident, which is chargeable to tax under the ITA, must withhold tax at the applicable rates. The language in the ITA is wide enough to also include a non-resident. Therefore, if the capital gains earned by a non-resident from sale of shares in an Indian company are taxable in India, there is a liability on the buyer (irrespective of the buyer’s location) to withhold and deposit the tax with the Indian Government. Failure to deduct tax could result in the buyer being considered as an assessee-in-default, and the buyer may be liable to pay interest and a penalty in addition to the amount of tax in arrears.