shankarlal jain & associates chartered accountants 12, engineer building, 265, princess street,...

SHANKARLAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI – 400 002.INDIA.

Doing Business in

A Presentation by Mr. Satish Jain

Doing Business in India

INDIA at a Glance

Basic Economic Data

Basic Foreign Direct Investment Data

Direct Tax Residential Status Scope of Tax Tax Rates Capital Gains Deduction / Exemption Available Withholding Tax Double Tax Avoidance Agreement Transfer Pricing Recent Pronouncements

With regard to Foreign Taxation

CONTENTS

Shankarlal Jain & AssociatesChartered Accountants


Indirect Tax

Service Tax

Cross Border Transaction

Value Added Tax

Excise Duty

Foreign Direct Investment

Sectoral CAP of Foreign Direct Investment

Conclusion

CONTENTS (Cont…)



INDIA AT A GLANCE

India is a Union of States with parliamentary system of Government

Land area: 3.29 million square kilometers

Capital: New Delhi

Population: 1.21 Billion (2011)

Climate: mainly tropical with temperature ranging from 10 – 40 Celcius in most parts

Time Zone: GMT + 5 1/2 hours

Major International Airports: New Delhi, Mumbai , Chennai , Kolkata ,Bangalore ,

Hyderabad, Thiruvananthapuram

Major Ports of Entry: Chennai, Ennore, Haldia, Jawaharlal Nehru, Kolkata , Kandla ,

Kochi, Mormugao, Mumbai, New Mangalore, Paradip and Tuticorin, Vizag



INDIA AT A GLANCE (Cont..)

India’s per capita income is US$ 1549.9 in 2011-12, at

current prices, which is higher by 26.68% from the per

capita income in 2010-11.

India can boast of remarkably strong manpower resources

with one of the most developed higher education systems

across the globe.

India’s size of education system ranks third in the world,

after US and China.

The literacy rate in India is 74% in 2011, with English being

understood and used commonly as a medium of spoken

and written communication.


DEVELOPMENT FOR ALL….


INDIA AT A GLANCE (Cont..)

Young, Optimistic, Happy Generation

Developed Markets

Avg Age (Yrs)

UK 40.2

USA 37.1

Spain 40.9

Finland 42.7

France 40.4

Germany 45.3

Sweden 42.2

Emerging Markets

Avg Age (Yrs)

India 26.5

China 35.5

Indonesia 28.5

Pakistan 21.9

Brazil 29.6

Nigeria 17.9

South Africa 25.3


BASIC ECONOMIC STATISTICS

GDP at current prices(2011-12): US$ 1,859.9 billion

GDP (PPP) 2011: US$ 4,463 billion

GDP Growth Rate 2012: 6.5%

Exchange rate (as on 31ST March, 2012): Rs.51.15/ $

Foreign Exchange Reserves (March 2012): US$ 294.4 billion

Exports 2011-12: US $ 303.7 billion, Growth Rate: 21%

Imports 2011-12: US $ 488.6 billion, Growth Rate: 32.1%



BASIC ECONOMIC STATISTICS (Cont…)

Finance and Market

During Financial Year 2011-12 (upto 30th December,2011)

Decline in resource mobilization on account of weak Global economic scenario.

The decreasing trend of primary market was also observed in the secondary

market, the indices of India decreased by 20.7% from the previous closing of 2011.



BASIC ECONOMIC STATISTICS (Cont…)


Sources (Funds Mobilized)

2011-12(Upto Dec)

2010-11(Upto Dec)

Equity Public Issues Rs 9,683 Crore(US $ 193.66 M)

Rs 48,654 Crore(US $ 973.08 M)

New IPO’s listed on BSE & NSE & funds raised

30 new companiesRs 5,043 Crore(US $ 100.86 M)

53 new companiesRs35,559 Crore(US $ 711.18 M)

Average IPO size Rs168 Crore(US $ 3.36 M)

Rs 671 Crore(US $ 13.42 M)

Debt Issue Rs 4,791 Crore(US $ 95.82 M)

Rs 9451 Crore(US $ 189.02 M)

Private placement in Corporate Debt

Rs1,88,530 Crore(US $ 3770.6 M)

Rs 2,18,785 Crore(US $ 4375.7 M)

Mutual funds (Upto November) Rs 1,00,338 Crore(US $ 2006.76 M)

Rs 49,406 Crore(US $ 988.12 M)



Foreign Direct Investment 2011-12: US $ 46.8 billion,

Growth Rate: 34%

India is the fourth destination country for FDI in terms of projects.

India remained very attractive for FDI in 2011. FDI projects

increased by 20% in India in 2011, attracting 932 projects, which

created an estimated 255,416 jobs.

This is despite a global economic growth that had not fully

recovered from the financial crisis of 2008–09 and has begun to

slow again, from over 5% in 2010 down to a projected 3.3% through

2012.

In terms of FDI value, India ranked third, behind China (first) and

Brazil (second) and ahead of the US and UK.


BASIC FOREIGN DIRECT INVESTMENT STATISTICS


Rank Countries

Number of Projects Increase/

(Decrease)Value Us$ Million

20112010 2011

1 United States 1,522 1,707 12% 57,275 2 China 1,344 1,409 5% 100,688

3United

Kingdom 941 1,014 8% 36,039

4 India 774 932 20% 58,261

5 Brazil 366 507 39% 63,018

Top Five Recipient Countries by Number of Projects

Top five cities in India attract 42% of the investment projects, 36% of the jobs

created by FDI and 28% of the value of FDI in India.

Bangalore

Mumbai

Chennai

New Delhi

Pune

BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…)



BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…) FDI by Sector :

Rank

FDI Projects No. of Jobs CreatedValue of FDI

(in Us $ Million)

2010 2011Increase / (Decrease)

2010 2011Increase / (Decrease)

2010 2011Increase/ (Decrease)

Infrastructure 19 36 89.5% 1,8347 22,137 20.7% 2,877.3 3,110.8 8.1%

Automotive 61 78 27.9% 34,109 40,518 18.8% 5,629.5 7,358.0 30.7%

Retail and Consumer Products

68 89 30.9% 30,561 28,478 (6.8%) 4,197.7 2,149.7 (48.8%)

Technology 130 153 17.7% 28,860 41,607 44.2% 4,257.3 6,196.9 45.6%

Financial Services

34 41 20.6% 5,943 8,498 43% 986.2 1,729.7 75.4%

Life Sciences 45 34 (24.4%) 5,379 4,603 (14.4%) 1,184.0 1,822.5 53.9%


STATUS OF TAXABLE ENTITY Resident of India

I. a. An individual who has been in India for a period amounting to 182 days or more or

b. Within four preceding years have been in India for a period or periods amounting to 365 days or more and for a period of 60 days during the year.

II. A Company is Resident in India in any Previous Year if

a.Indian company or

b.During the year Control and Management of its affairs is situated wholly in India.


FINANCIAL YEAR Is 1ST APRIL TO 31ST MARCH of each year.


III. Every other person, is said to be a resident in India in the previous year except

where during that year Control and Management of its affairs is situated wholly

outside India.

Not an Ordinary Resident (NOR)

A person is said to be not an 'Ordinary Resident' in India in any previous year if

such person is an individual who has not been a resident in India in nine out of ten

previous years preceding to that year or has during the 7 previous years

preceding to that year been in India for a period of 729 days or less.



SCOPE OF TAXABLE INCOME

I. RESIDENT

a. All income as received or deemed to be received in India during the Financial Year.

b. Income accrues or arising or deemed to be accrued or arisen in India during such a year.

c. Accrue or arising to him outside India during such year.

II. NON RESIDENT

a. All income as received or deemed to be received in India in such year or

b. Accrued or arisen or deemed to accrue or arise in India during the year.




TAXATION CORPORATE TAXES

Domestic Company

Foreign Company

Income Slab Rate of Taxation

Upto Rs 10 Million 30.90%

Above Rs 10 Million 32.45%


Upto Rs 10 Million 41.20%

Above Rs 10 Million 42.02%



PERSONAL TAXES


Income between Re 0 - Rs 200,000 NIL

Income between Rs 200,001 - Rs 500,000 10.30%

Income between Rs 500,001 - Rs 1 Million 20.60%

Income above Rs 1 Million 30.90%

NO STATE TAX IS PAYABLE SEPARATELY

LLPs & Firm Taxes are payable at 30.9%.



CAPITAL GAINS Capital Gains Arises if

Share Listed /Specified Units

Short Term, if holding

period of the

assets is < 12

months

Long Term, if holding

period of the

assets is > 12

months

Share Unlisted


period of the

assets is < 12

months


period of the

assets is > 12

months

All Other Assets


period of the

assets is < 36

months


period of the

assets is > 36

months

Rate of Capital Gain is 15.45%

*Rate of Capital Gain is NIL%


Rate of Capital Gain is 20.60% with indexation

** Rate of Capital Gain is 20.60 % with indexation

*If Securities Transaction Tax paid**In Case of Non Resident at 10.30% without indexation




DIVIDEND DISTRIBUTION TAX

A company distributing divided is liable to pay tax @ 15.75% thereon on dividend

distributed.

LOSSES

Business losses are allowed to be carried forward for a period of 8 years and

unabsorbed depreciation is carried forward for unlimited period.



MINIMUM ALTERNATE TAX (MAT)

If tax payable under normal provision of Income Tax Act is less than 18.5% of the

book profit as disclosed by audited accounts MAT Tax will be payable.

MAT credit will be available for 10 Assessment Years immediately succeeding the

assessment year.

ALTERNATE MINIMUM TAX (AMT)

In case of non-corporate assessees such as LLPs, Partnership firms, individuals,

Association of persons,

It is provided that tax payable will not be lower than 18.5% of the ‘Adjusted Total

Income'. A tax credit for Alternate Minimum Tax is available for a period of 10 years.



TAX EXEMPTION / INCENTIVES

Sr. No Eligible Business Quantum of Deduction

1. An enterprise produce eligible articles in North Eastern States

100% profit is exempt for 10 consecutive Years

2. Development Special Economic Zone (SEZ)

100% profit is exempt for 10 consecutive assessment Year out of 15 Years

3. SEZ unit engaged in manufacturing of product and services

Profit is exempt 100% for 5 consecutive year, 50% of profit for further 5 years and for next 5 years 50% profit is exempt.



Sr. No

Eligible Business Quantum of Deduction

4. An enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility. Infrastructure facility implies.(a) A road including toll road, a bridge or a rail system(b) A highway project including housing or other activities

being an integral part of the highway project(c) A water supply project, water treatment system, irrigation

project, sanitation and sewerage system or solid waste management system

(d) A port, airport, inland waterway, inland port or navigational channel in the sea

(e) Operating inland container depot or container freight station duly approved

100% deduction for 10 consecutive years in a block of 15 years



Sr. No

Eligible Business Quantum of Deduction

5. Income of Venture Capital co. & Capital fund for investment Fully exempt from tax

6. Income of infrastructure debt fund Fully exempt from tax

7. An undertaking is engaged in laying and operating a cross country natural gas or crude or oil pipelines network for distribution chain facility.

100% deduction

8. An undertaking is engaged in developing housing projects in scheme of Slum development approved by Central Government

100% deduction

9. An undertaking is engaged in bee – keeping and production of honey , setting up and operating warehousing facility for storage of sugar and setting up 2 star or upper category of hotels

100% deduction



Sr. No Eligible Business Quantum of Deduction

10. Operating and maintaining a hospital in rural area - The hospital has at least 100 beds for patients

150% deduction

11. Setting up & operating warehousing facility for storage of agricultural produce

Building and operating housing project under scheme for affordable housing framed by Central Government.

Setting up and operating cold chain facility Production of fertilizers

150% deduction

12. Research & Development Expenditure:Expenses incurred on in-house Research &

Development by an industrial undertaking. 200 % on capital Expenditure

Contribution made by a company to National Laboratories, Universities, Indian Institute of Technology or certain specified persons to be used for scientific research undertaken under approved programme

200% on contribution


Note: Capital subsidy and VAT subsidy by States are given for setting up of industrial units in the respective states by allowing capital subsidy on capital cost of unit and also allowing exemption from payment of VAT or other incentives.


WITHHOLDING TAX

Description Domestic Company Foreign Company

Dividend NIL Not applicable

Interest 20%

20% - however, in case of a foreign company, interest payable by infrastructure fund is 5% or if borrowings made after 1st July,2012 and before 1st July, 2015 under an approval of loan agreement at 5% when such interest is paid by an Indian company .

Royalty 10% 10%

Fees for Technical Services 10% 10%

Any other services Different Rates 30% in case of non-corporate assessee40% in case of company.

Note: In case a Non-resident does not have an Indian PAN, the tax deductable will not be less than @20.60%



DOUBLE TAX AVOIDANCE AGREEMENT

India is having DTA with 82 major economies of the world.

The Provision of Indian Income Tax Act or provision of DTA whichever is more

favorable will be used for calculation of tax liability.

For availing benefit of DTA a Non-resident has to submit a Tax Residency

Certificate.

In case where there is no DTA, if an income is taxed in India as well as in a foreign

country credit be allowed for taxes paid in foreign country, not being higher to tax

payable in India.



TRANSFER PRICING AND ADVANCE PRICING AGREEMENT

Transfer Pricing provisions are applicable:

To International transaction with associated enterprises

Transfer price is to be computed on the basis of one or more methods

prescribed for determining terms of pricing: Comparable Uncontrolled Price (CUP) Resale price method Cost plus method Profit split method Transactional Net Margin Method (TNMM) or any other method as may be prescribed

Advance pricing agreements Methodology of arm's length price be determined. Bilateral or Multilateral agreement.



GENERAL ANTI AVOIDANCE RULES

Introduced by Finance Bill 2012 but deferred till 2014.

Inpermissible Avoidance arrangements be derecognized.

Inpermissible Avoidance arrangements shall be:

Arrangement to obtain tax benefit which has no commercial substance.

Arrangements create rights or obligations which cannot be

normally created between persons dealing at arm's length

Arrangements which misuses legal provisions

Necessary safeguards provided. General Anti Avoidance Rules are

postponed for time being and a high power expert committee is

being appointed to determine the scope and applicability of the

avoidance rules and methodology of such application.



Indirect Transfer of Indian Securities

Any capital asset being share or any other interest in a company

or an entity registered or incorporated outside India shall be

deemed to be situated in India, if share of such foreign entity

derives directly or indirectly its substantial value from the assets


located in India. [The provisions were incorporated by Finance Bill 2012 with

retrospective effect from 01/04/1962].

In case a foreign entity derives its value substantially from assets located in India

by way of shares or otherwise, any transfer of foreign entity shares will have an

effect of transfer of Indian securities and will be liable for capital gain.

By amendment to withholding tax provisions it has been provided that such

foreign entities being transferor will be liable for tax withholding on such capital

gain arising on such transfer.

RECENT PRONOUNCEMENTS WITH REGARD TO FOREIGN TAXATION


ROYALTY PAYABLE ON COMPUTER SOFTWARE

Amended with effect from 01/06/1976.

It includes:

any rights to use, a computer software including granting

of license, any disc, tape, perforated media or any other

information, storage device or any customized electronic

data.

TRANSMISSION BY SATELLITE

Amended with effect from 01/06/1976.

It includes:

transmission by satellite including up linking amplification,

conversion for down linking of any signal, cable, optic fiber

by any other similar technology.



SERVICE TAX

Rate: 12.36% on value of all taxable services.

Taxable Service: All services other than those specified in the negative list

provided in the taxable territory by any person to another.

Service means any activity for consideration (including non-monetary).

Taxable Territory: Service Tax is applicable to the whole of India except state of

Jammu & Kashmir.



There are 17 services which have been specified in the negative

list, mainly are:

Services provided by Government or Government Agencies

Agriculture

Trading of goods

Process amount to manufacture or production of goods

Selling of time slot for advertisement

Educational

34 specified services are also exempted from services

Point of Taxation

Value of taxable service in case of reverse charge

CENVAT Credit on Capital Goods

Interest on delayed payment @18% Per Annum

NEGATIVE LIST OF SERVICE (EFFECTIVE FROM 01/07/2012)



CROSS BORDER TRANSACTION

As regards Cross Border Transaction, to determine the place of provision of services

the Law has introduced concept of Import of services & Export of services.

Import of Services

Any taxable service providing to any entity in India will be payable by the Indian

entity utilizing such services.

Export of Services

Any taxable service providing by an Indian entity no Service Tax will be payable

provided payment is received by an Indian entity in foreign exchange.



VALUE ADDED TAX ACT (VAT)

Value added tax (VAT) is a consumption tax (CT) levied on

any value that is added to a product.

A VAT is a state subject in India and is levied differently by

each state.

Maharashtra VAT (MVAT) laid down as under :

MAHARASHTRA VALUE ADDED TAX ACT (MVAT) Liable to pay tax on the basis of turnover of sales within the state.

It includes:

all persons who buys or sells goods for commission, remuneration or

otherwise.

Does not includes:

Agriculturist, Educational Institutions and Transporters.



MVAT (Cont…)


Turnover limit for the purpose of VAT liability

are as under:

Importer - Rs.100,000/-

Others - Rs.500,000/-

Rate of VAT:

Schedules Commodities Rate

Schedule ‘A’ Essential Commodities (Tax free) Nil

Schedule ‘B’ Gold, Silver, Precious Stones, Pearls etc. 1%

Schedule ‘C’ Declared Goods, Industrial Inputs, and such other specified goods 4%

Schedule ‘D’ Foreign Liquor, Country Liquor etc. 20%

Schedule ‘E’ All other goods (not covered by A to D) 12.50%


FILING OF RETURN

Every Registered dealer is required to file

return.

Input Tax Credit (ITC) is also available on

purchase of raw materials, finished goods,

packing materials and also available on capital

goods.

AUDIT OF ACCOUNTS

Liable to get its accounts audited if turnover

exceeds to Rs 6 million.



CENTRAL EXCISE DUTY

All excisable goods which are produced or manufactured in India and the rates

mentioned in first schedule of Excise Tariff Act,1985.


VALUATION OF GOODS MANUFACTURED

Transaction value.

Assessable value.

Certain specified goods are valued with reference to MRP.

CENVAT credit on raw material and capital goods are also available.



FOREIGN DRIECT INVESTMENT ROUTE

IN INDIA


SECTORAL CAP OF FOREIGN DIRECT INVESTMENT

FDI is prohibited in

Lottery business

Gambling & Betting

Chit Funds.

Nidhi Company.

Trading in transferable development rights.

Real estate business or construction of farm house.

Manufacturing of cigar, cigarettes or tobacco or its substitutes.

Activities/sectors not opened to private investment, i.e. atomic

energy, railway transport, other than mass rapid transport

system.



Sr. No. Sector / Activity

%-ge of FDI Entry Route

1. Agriculture and Animal Husbandry – Activities as prescribed such as flori culture, horticulture, development of seeds, animal husbandry, services related to agro and allied sector – certain conditions prescribed.

100% Automatic

2. Tea plantation – certain conditions prescribed 100% Government

3. Mining 100% Automatic

4. Coal & Lignite 100% Automatic

5. Mining of Titanium – certain conditions prescribed 100% Government

6. Petroleum & Natural Gas:Exploration activities – Infrastructure relating to marketing 100% Automatic

7. Defence industry – subject to industrial licencing – certain conditions prescribed

26% Government

8. Broadcasting – certain conditions prescribed 26% Government

9. Cable network 49% Government



Sr. No. Sector / Activity %-ge of FDI Entry Route

10. Direct to Home 49% (FDI, NRI & PIO and Portfolio Investment) within this limit FDI component not to exceed 20%

Government

11. Broadcasting Services (HIITS) 74% Automatic upto 49% and balance Government

12.Setting up hardware facilities such as uplink , HUB etc.i) Setting up uplink

HUB/Teleports

ii) Uplink or non news and current affair TV channel

iii) Uplink a news and current affair TV channel - certain conditions prescribed.

49% (FDI & FII)

100%

26% (FDI & FII)

Government

Government

Government

13. Print media 26% Government



Sr. No Sector / Activity %-ge of

FDI Entry Route

14. Publishing/printing of scientific and technical magazines, speciality journals/periodicals – certain conditions prescribed.

100% Government

15. Airports:i) Green field projects

ii) Existing projects

100%

100%

Automatic.

Automatic upto 74% and balance Govt.

16. Air Transport services 49 % Automatic

17. Helicopter services etc. 100% Automatic

18. Services for civil aviation sector:i) Ground handling services

ii) Maintenance & repair organization, flying training institutes, technical training institutes

74%

100%

Automatic upto49% and balance Govt.

Automatic



Sr. No Sector / Activity %-ge

of FDI Entry Route

19. Courier services for carrying packages, parcels 100% Government

20. Construction & development of township, housing, built-up infrastructure - certain conditions specified

100% Automatic

21. Industrial Parks 100% Automatic

22. Private security agencies 49% Government

23. Telecom Services 74% Automatic upto 49% and balance Govt.

24. Electronic mail, voice, mail & infrastructure provider – providing duct space, tower – certain conditions applied.

100% Automatic upto 49%and balance Govt.

25. Insurance 26% Automatic

26. Non Banking Financial Companies – only certain activities permitted subject to certain conditions 100% Automatic

27. Pharmaceuticalsi) Greenfield

ii) Existing companies

100%

100%

Automatic

Government



Sr. No Sector / Activity %-ge

of FDI Entry Route

28. Trade:i) Cash & carry wholesale trading - certain

conditions prescribedii) E-commerce activity iii) Single brand product retain tradingiv) Multi brand product retain tradingv) Asset Reconstruction Cos. (ARC)vi) Private Banking – certain conditions

prescribed. vii) Banking public sectorviii) Commodity Exchangeix) Credit Information companiesx) Stock exchange, depositories clearing

corporations in compliance with SEBI regulations

100%

100%100%51% 49%74%

20%49%*49%49%**

Automatic

AutomaticGovernmentGovernmentGovernmentAutomatic upto 49% and balance Govt. GovernmentGovernmentGovernmentGovernment

*49% (FDI & FII) [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ] **49% (FDI & FII) [FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital ]



CONCLUSION

PROS Big Market Growing Per Capita Income Increasing Middle Class Population Tax Rate competitive with other economies High Rate of Literacy & Computer Knowledge

CONS Lack of Infrastructure

(can be looked both ways) Bureaucracy Political uncertainty Fiscal Deficit


shankarlal jain & associates chartered accountants 12, engineer building, 265, princess street,...

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