Last modified: 18/01/2025 05:13

Corporate taxation

	Rate
Corporate income tax rate	15%-30%
Foreign Branch Office	35%
Capital gains tax rate	10%-30%

Comments: The applicable rates of surcharge for corporates: 2-12% & Cess: Health and Education cess@4% will further increase the rates of taxes.

Residence: A company incorporated in India will always be considered a resident of India. A company other than an Indian company (i.e., a foreign company) is said to be resident in India during a year, if its place of effective management, in that year, is in India.

Basis: A resident (domestic) company is taxed on its worldwide income. A non-resident (foreign) company is taxed only on income that is received in India, or that accrues or arises, or is deemed to accrue or arise, in India.

Taxable income: In India, any income that the company earns can be classified into various heads of income which are: 1) Income from business and profession: Income comprising of revenue from business operations after adjusting the allowable expenses under the Income Tax Act, 1961. 2) Income from house property: Income arising from letting a house property to any third party after adjusting the allowable deductions as per the relevant sections of the Income Tax Act, 1961. 3) Income from Capital gains: Income arising due to the appreciation of capital assets held by an enterprise. 4) Income from other sources: Income from other sources is a residuary head of income and sweeps in all such incomes that fall outside the other four heads of income.

Significant local taxes on income: India has a unified national income tax law and there are no separate provisions regarding local/ state income taxes

Alternative minimum tax: MAT stands for Minimum Alternate Tax, and it was launched to reduce (if not to bridge) the gap between tax computed as per income under the provisions of the Income Tax Act vis-à-vis book profits.

Taxation of dividends: Dividend received from a domestic company is taxable. It will be charged to tax under the head “income from other sources.” Similarly, the dividends received from a foreign company will be included in the total income of the taxpayer. These will be charged to tax at the rates applicable to the taxpayer.

Capital gains: Any profit or gain that arises from the sale of a ‘capital asset’ is known as income from capital gains. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax. There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG) determined based on the holding period of such capital assets. The Tax rates for Capital gains are as follows: If the assets transferred are Listed Equity shares, Units of equity-oriented funds, and units of business trust, then Short-term capital gains will be taxed @ 20% and long-term capital gains will be taxed @ 12.5%, and for all other assets transferred, short term capital gains will be taxes as per applicable slab rates and long term capital gains @ 20%/12.5% as applicable.

Losses: Capital Losses can be carried forward up to the next 8 assessment years from the assessment year in which the loss was incurred. The long-term capital losses can be adjusted only against long-term capital gains but short-term capital losses can be set off against long-term capital gains as well as short-term capital gains. Capital losses cannot be carried forward if the returns are not filed within the original due date.

Foreign tax relief: Foreign source income is included in the taxable income of a domestic company. However, subject to limitations and restrictions, taxes paid to a foreign jurisdiction in connection with the item of foreign source income may qualify as a foreign tax credit.

Participation exemption: : India does not have direct participation exemption rules but it does provide tax exemption or reduced rate of taxation for dividends received from foreign subsidiaries.

Holding-company regime: There is no holding company regime in the country.

Tax-based incentives: The following are the tax-based incentives in practice- 1) Tax framework for start-ups in India. 2) Tax Incentives for manufacturing companies. 3) Real Estate Investment Trusts (REITs)/Infrastructure Investment Trusts (InvITs). 4) Tax incentives for undertakings other than infrastructure development undertakings. 5) Tax incentives for the development of affordable housing projects. 6) Tax incentives for infrastructure development undertakings. 7) Tax incentives for exports. 8) Tax incentives for offshore banking units in an SEZ. 9) International Financial Services Centre (IFSC) tax incentives. 10) Tax Incentives for specified funds. 11) Safe harbor for offshore funds managed from India. 12) Patent Box Regime.

Group relief/fiscal unity: Group taxation is not permitted under the Indian tax law.

Small company/alternative tax regimes: • Section 115BA of the Income Tax Act, 1961, offers a concessional tax rate of 25% (plus applicable surcharge and cess) to manufacturing domestic companies that choose not to claim certain deductions and exemptions. It simplifies the tax structure and encourages companies to focus on business operations. • Section 115BAA provides an alternative tax regime, allowing domestic companies to opt for a reduced tax rate of 22% (plus surcharge and cess) by forgoing specified deductions and exemptions. This aims to attract investment and make India’s tax system globally competitive. • Section 115BAB offers a special tax rate of 15% (plus surcharge and cess) to new domestic manufacturing companies incorporated after October 1, 2019, and commencing operations on or before March 31, 2024. It aims to promote domestic manufacturing, support the ‘Make in India’ initiative, and stimulate investment in the manufacturing sector.

Corporate taxation: compliance

Tax year: The Assessment Year is the 12 month-period that comes right after the financial year. It is the period from April 1 to March 31, during which revenue produced during the fiscal year is taxed.

Consolidated returns: No, all entities and individuals are required to file separate tax returns. There is no provision for filing consolidated returns of income in India.

Filing and payment: The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.

Penalties: A penalty or a punishment is imposed on the taxpayers for being non-compliant. Under the Income-tax Act, penalties are levied for various defaults committed by the taxpayer. Some of the penalties are mandatory and a few are at the discretion of the tax authorities. Defaults for which penalty can be charged are 1) Default in making payment of income-tax/withholding taxes 2) Failure to maintain books of accounts and other documents 3) Under-reporting/ Misreporting of income 4) Penalty for false entry such as fake invoices 5) Undisclosed income 6) Audit Compliance and Filing of Audit Report 7) Penalty for Non-compliance of Transfer Pricing Rules 8) Penalty for using modes other than Account payee cheque/draft/ ECS 9) Failure to furnish statements/ information 10) Penalty for failure to disclose foreign assets.

Rulings: Under the direct tax laws, the power of giving advance rulings has been entrusted to AAR, and it has been ensured that the procedure is simple, inexpensive, expeditious, and technology-driven. The AAR has full power of civil court under the Code of Civil Procedure, 1908 as referred to in section 131 of the Act to give its rulings in respect of specific questions of law and facts.

Taxation of individuals

Rates of Taxes – (New Regime without availing deductions)

Income Slabs	Rates of Taxes
0-300 thousand	NIL
300-700 thousand	5%
700-1,000 thousand	10%
1,000-1,200 thousand	15%
1,200-1,500 thousand	20%
Above 1,500 thousand	30%

These rates have been prescribed under the new tax regime which is currently the default tax regime. However, individuals can voluntarily opt for the old tax regime.

Residence: Taxation of individuals in India is primarily based on their residential status in the relevant tax year. The residential status of individuals is determined independently for each tax year and is ascertained based on their physical presence in India during the relevant tax year and past years. An individual is said to be a resident in the tax year if he/she has: • physical presence in India for a period of 182 days or more in the tax year (182-day rule), or • physical presence in India for a period of 60* days or more during the relevant tax year and 365 days or more in aggregate in four preceding tax years (60-day rule). If none of the above two conditions are met, the individual is said to be a Non-Resident (NR) in that tax year. Further, a resident individual can be classified as an Ordinary resident (ROR) and a resident but not ordinarily resident (RNOR). Also, exceptions to the aforementioned general rules determining resident and non-resident status have been prescribed based on reason or purpose to leave India, taxation in the home country, etc.

Basis: Under Indian tax laws, the scope of taxation differs according to the residential status of an individual: • RORs are subject to tax in India on their worldwide income, wherever received. • RNORs are subject to tax in India only with respect to income that accrues/arises or is deemed to accrue/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. • NRs are subject to tax in India only with respect to income that accrues/arises or is deemed to accrue/arise or is received or deemed to be received in India. RNOR and NR individuals are not subject to tax with respect to their income earned and received outside of India.

Taxable income: Subject to certain exceptions, taxable income generally includes income derived from any source.

Capital gains: Any profit or gain that arises from the sale of a ‘capital asset’ is known as income from capital gains. Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This is called capital gains tax. There are two types of Capital Gains: short-term capital gains (STCG) and long-term capital gains (LTCG) determined based on the holding period of such capital assets. The Tax rates for Capital gains are as follows: If the assets transferred are Listed Equity shares, Units of equity-oriented funds, and units of business trust, then Short-term capital gains will be taxed @ 20% and long-term capital gains will be taxed @ 12.5%, and for all other assets transferred, short term capital gains will be taxes as per applicable slab rates and long term capital gains @ 20%/12.5% as applicable.

Deductions and allowances: Income tax deductions are means to reduce the taxable income of an assessee. Several deductions have been introduced under different sections to spread the habit of savings among people and help them construct a monetary future that is stable. A few examples of Income Tax (IT) deductions are the National Pension Scheme (NPS), Public Provident Fund (PPF), investments done u/s 80 of the Income Tax Act (ITA), 1961, in Equity Linked Savings Scheme funds, etc. However, most of these deductions and allowances are not permitted under the new scheme of taxation for individuals.

Foreign tax relief: Residents are allowed a credit against their Indian tax liability for income tax paid abroad on income arising abroad, which is doubly taxed, according to the terms of the provisions of the relevant tax treaty.

Taxation of individuals: compliance

Tax year: Assessment Year – 1st April to 31st March of the year succeeding the financial year under consideration.

Filing and payment: The taxpayer shall file an income tax return every year via ITR forms prescribed by the income tax department. The government has prescribed seven ITR forms through which the taxpayer can file his income tax return. The taxpayer has to choose the appropriate ITR forms and file his income tax return.

Penalties: A penalty or a punishment is imposed on the taxpayers for being non-compliant. Under the Income-tax Act, penalties are levied for various defaults committed by the taxpayer. Some of the penalties are mandatory and a few are at the discretion of the tax authorities. Defaults for which penalty can be charged are 1) Default in making payment of tax 2) Failure to maintain books of accounts and other documents 3) Under-reporting/ Misreporting of income 4) Penalty for false entry such as fake invoices 5) Undisclosed income 6) TDS/TCS 7) Penalty for using modes other than Account payee cheque/draft/ ECS 8) Failure to furnish statements/ information 9) Others.

Rulings: Under the direct tax laws, the power of giving advance rulings has been entrusted to AAR. An individual can approach AAR for an advance ruling for the specified transactions.

Withholding taxes

Withholding Tax (WHT), also called TDS in India, is an obligation on the person (either resident or non-resident) to withhold tax when making payments of a specified nature, such as rent, commission, salary, for professional services, to satisfy contract provisions, etc. – at rates specified in India’s tax regime. In India, the withholding tax rates are collected or deducted at different rates depending upon the type of transaction.

Withholding Taxes Table for payments made to Residents:

Nature of payment to Residents	Payment threshold for WHT (INR)	WHT rate (%)
Purchase of goods	5 million	0.10%
Interest	5000/40000	10%
Professional service	30,000	10%
Technical service	30,000	2%
Remuneration/fee/commission to a director	None	10%
Royalty for sale, distribution, or exhibition of cinematographic films	30,000	2%
Royalty other than for sale, distribution, or exhibition of cinematographic films	30,000	10%
Non-Compete fees	30,000	10%
Perquisite arising from business or profession	20,000	10%
Payment from transfer of VDA	10,000 (single payment); 50,000 (aggregate payment)	1%
Commission and brokerage	5,000	2% (w.e.f. 01-10-2024)
Rent of plant, machinery, or equipment	240,000	2%
Rent of land, building, or furniture	240,000	10%
Contractual payment (except for individual/HUF)	30,000 (single payment); 100,000 (aggregate payment)	2%
Contractual payment to individual/HUF	30,000 (single payment); 100,000 (aggregate payment)	1%
Payments by individual/HUF not covered under payments to contractors/commission or brokerage/fees of professional or technical services	5 million	2% (w.e.f. 01-10-2024)
Dividend income on shares	5,000	10%
Dividends for units of mutual fund	5,000	10%
Purchase of immovable property	5 million	1%
Cash withdrawal from bank or banking company	10 million	2%
Payments to an e-commerce participant (other than individual/HUF), in relation to sale of goods or services facilitated by e-commerce operator through digital platform	None	0.1% (w.e.f. 01-10-2024)
Payments to an e-commerce participant (individual/HUF), in relation to sale of goods or services facilitated by e-commerce operator through digital platform	500,000	0.1% (w.e.f. 01-10-2024)

Branch remittance tax: Taxes at the rate of 35% will be charged on income of the branches of foreign companies are taxed that is received in India, or which accrues or arises in India. There are NO withholding taxes on the remittance of profits by the branch to its head office subject to appropriate payment of taxes by branch.

Anti-avoidance legislation

Transfer pricing: In India, the transfer pricing provisions are applicable and the necessary provisions have been introduced by the income tax department. Transfer Price is the actual price charged in a transaction between related entities that are part of the same Multi-National Enterprises (MNE) group. Transfer pricing refers to tax avoidance practiced by MNE groups by setting transfer prices of intra-group transactions such that these differ from the prices that would be obtained had the group members been unrelated entities dealing at arm’s length.

Interest restriction: Section 94B has been inserted in the Income Tax Act, 1961 via Finance Bill,2017 to curb the practice of shifting profits to tax havens through excessive interest payments by primarily considering the recommendations by the OECD under Action Plan 4 of the Base Erosion and Profit Shifting (“BEPS”) project. Section 94B is attracted in the cases where any Indian company or the Permanent Establishment of a foreign company incurs an interest expenditure exceeding One crore rupees in respect of any debt issued by a Non-resident AE. The applicable limit on interest payments would be 30% of Earnings before interest, depreciation taxes, and amortization.

Controlled foreign companies: Currently there are no CFC provisions existing in India.

Hybrid mismatches: In India, hybrid mismatches are covered under transfer pricing provisions.

Disclosure requirements: A non-resident having a place of business or significant economic presence or Permanent Establishment in India is required to prepare financial statements, and annual returns on its activities and submit this information within the prescribed period from the end of the financial year.

Exit taxes: There is no provision for exit taxes in India. However, the assessing officer may require in some cases NOCs to be obtained before leaving the country.

General anti-avoidance rule: Chapter X-A of the Act includes GAAR provisions, which have an overriding effect on the other provisions of the Act. GAAR will apply to transactions, notwithstanding any other provisions of the Act. GAAR applies to any arrangement that is considered an Impermissible Avoidance Arrangement (IAA). Furthermore, under its provisions, certain transactions are deemed to lack commercial substance. GAAR is not merely restricted to cross-border transactions but also applies to domestic arrangements.

Digital services tax and Other significant anti-avoidance legislation: Effective from 01 April 2020, the Government of India had widened the scope of its equalization levy to include e-commerce sales of goods and services provided by non-resident operators to Indian customers. The equalization levy was imposed at 2% on the considerations received or receivable by the non-resident e-commerce operators. The said levy is withdrawn with effect from 01 August 2024. Currently the only equalisation levy in force is charged at the rate of 6% from the consideration paid or payable for the services in the nature of online advertisement, provision for digital advertising space, any other facility or service for the purpose of online advertisement.

Value-added tax/Goods and services tax

Type of tax: In India, there is a proper Indirect tax system and the necessary rules regarding the same are in place. The indirect tax in the country is known as the GST (Goods and Service Tax) and applies to both goods and services unified for the whole country.

Standard rate: The applicable rates of GST are issued by the GST council and they differ (0% to 28%) from each other for different types of goods and services. Most of the goods and services are taxed @ 18%.

Reduced rates: There is a unified rate system for every state and it is notified by the GST council for different types of goods and services.

Registration: As and when the organization meets or exceeds the criteria specified under the act, it needs to be registered under the state of its place of business. This has to be done separately each time it meets or exceeds the criteria irrespective of whether it has already registered itself in any other state previously.

Filing and payment: Generally, the GST returns have to be filed quarterly and the taxes have to be paid monthly unless the taxpayer opts for any other scheme.

Social security contributions

India’s social security system is composed of a number of schemes and programs spread throughout a variety of laws and regulations covering provident fund, health insurance, Employees Provident Fund, Employees State Insurance Corporation, Gratuity, Bonus etc. The applicability of mandatory contributions to such schemes is varied. Some requires employer contributions from all companies, some from companies with a minimum of ten or more employees, and some from companies with twenty or more employees.

The Code on Social Security, 2020 is enacted to reform the existing laws relating to social security expanding its applicability to all employees and workers including organized, unorganized, and other sectors. The Code applies to the whole of India. It covers matters related to Provident fund, social security for gig workers, Employee state insurance, gratuity, and maternity benefits. The Central Government will notify in the Official Gazette, of the date on which the Code will become effective and operational. These provisions relate to the Provident Fund Scheme, and Pension Scheme, their administration, and repealment. Other than the above-noted provisions, other schemes shall be governed by their concerned acts independently.

Self-employed

The Central Government introduced National Pension Scheme (NPS) to provide the benefit of an organized pension scheme to Indian citizens. Initially, NPS was meant for government employees only but was later opened for the private sector and self-employed individuals. It defines the rules related to income tax deductions available to taxpayers for contributions made to NPS.

Other taxes

Stamp duty: In respect of Stamp duty India follows both Central and State legislations for levy of stamp duty. There are some instruments which are covered under the Central legislation in form of Indian Stamp Act, 1899 whereas a number of instruments e.g. purchase of immovable property, probate etc. are under the respective state legislations.

Inheritance/gift taxes: India has provisions under the Income-tax Act which taxes receipts without consideration as taxable in India. However, there is no inheritance or gift tax levied separately.

Other: 1) Customs Duty: Custom Duty is levied on goods imported in India as well as exported from India. 2) Excise Duties: Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption. 3) Property Tax: In India, Property Tax is levied by the municipal authorities on real estate. It is based on the value of the property. The rate of property tax and manner of valuation varies from one municipal authority to the other. 4) Others: None notable.

Tax treaties

India has Double Taxation Avoidance Agreements (DTAA) with 96 countries . The full list of treaty countries is provided on the Income Tax India website at: https://incometaxindia.gov.in/pages/international-taxation/dtaa.aspx#skipcontent