Consumption taxes

Nature of the tax

Value Added Tax (VAT) and Sale taxes, depending on the State. For more details, consult the business portal of India. A nationwide Goods and Services Tax (GST) whose rate will be around 14-16% is expected to be launched in April 2012.

Tax rate

12.5%

Reduced tax rate

The lower rates are 4% (agriculture and industrial inputs) and 1% (gold and silver ornaments).

Other consumption taxes

Service Tax (12%) applies to more than 100 services. For details visit the web site: Service Tax.
Excise Duty: 8% (on drugs, pharmaceuticals, cans, paper, Water filtration and purification devices, etc), 12% (small cars, packaged software), 14% (cement) and 24%.
For further information consult the Central Board of excise and Customs.

Corporate taxes

Tax rate

Tax rate for foreign companies

Resident companies are subject to tax on gross worldwide income while non-resident companies are taxed only on Indian-source income.

Capital gains taxation

Long-term capital gains: 20% flat with indexation or 10% flat without indexation.
Short-term capital gains: 10%.
Gains from the sale of long-term capital assets are exempt from capital gains tax if they are reinvested in certain securities within six months and locked in for three years.

Main allowable deductions and tax credit

Specific deductions are allowed:

 

- A 100% deduction for interest payments on borrowed capital,
- Capital expenditure on research conducted in-house and for payments made for scientific research to specified organizations,
- Interest, royalties and fees paid outside of India to overseas affiliates or in India to a non-resident provided tax as required is withheld,
- Payments to employees under voluntary retirement schemes may be deducted over five years,
- Business losses (conditions apply).

Indian tax law does not permit companies to take a deduction for a general bad-debt reserve, although specific bad debts may be deducted when written off. For additional information, consult the Deloitte Tax Guide.

Other corporate taxes

A minimum alternative tax (MAT) is also imposed on corporations. If a company's tax liability is less than 10% of book profits, the book profits are deemed to be total income and are charged to tax at 10%, plus the applicable surcharge and cess.
A ‘fringe benefits tax' of 30% is imposed on the value of fringe benefits that companies provide or are deemed to provide to their employees.

Individual taxes

Tax rate

Allowable deductions and tax credit

Deductions are allowed for contributions to life insurance, recognized provident funds, national savings certificates, the national savings scheme, income from certain mutual funds and dividends, and some educational expenses up to an overall ceiling of INR 100,000.

Special expatriate tax regime

There are no special exemptions or deductions available to foreign nationals working in India, except for local living allowances, which are exempt to the extent expense is actually incurred.

Double taxation treaties

Countries with whom a double taxation treaty have been signed

Treaties signed with countries for avoidation of double taxation.

Withholding taxes

Dividends: 0%, Interest: 20%, Royalties:10%

Bilateral agreement

Sources of fiscal information

Tax Authorities

Income Tax Department

Other domestic resources

Central Board of Excise and Customs
Income Tax Act 1961
Department of Commerce
Service Tax
National Website of Income Tax Department of India