2 INDEX 1- Overview 2- Corporate Tax Rates 3- Distribution of Profits 4- Tax Planning Through DTAA 5- Permanent Account Number (PAN) 6- Books of Accounts 7- Financial Year
3 Overview 1- The provisions of Indian Income-Tax are governed by Indian Income-Tax Act, 1961 which extends to the whole of India and became effective from 1 st April 1962. 2- Every year a Budget is presented before the Parliament by the Finance Minister. One of the most important components of the Budget is the Finance Bill, which contains various amendments which are sought to be made in the area of Direct Taxes levied by the Central Government.
4 Corporate Tax Rates Nature of entity: Tax Rates 1- Indian company whether owned by foreigners or not : A- If profit does not exceed 10 million Indian Rupees. 30.90% B- If profit exceeds 10 million Indian Rupees. 33.22% 2- Branch office of a foreign company : A- If profit does not exceed 10 million Indian Rupees. 41.20% B- If profit exceeds 10 million Indian Rupees. 42.23% 3- Project office of a foreign company : A- If profit does not exceed 10 million Indian Rupees. 41.20% B- If profit exceeds 10 million Indian Rupees. 42.23%
5 4- Liaison Office N Not liable to tax as it is not permitted to earn any income and is only a cost centre. Liaison office can not enter into any commercial or business activity in India and can undertake only Liaison and related activities on behalf of its parent company.
7 Tax Planning Through DTAA 1- India has entered into Double Taxation Avoidance Agreement (DTAA) with various countries whereby tax paid in India is eligible for credit in foreign country. Similarly tax paid in foreign country is eligible for credit in India. 2- Article 13 of DTAA allows payment of fee for technical services to parent company. However this fee is subject to withholding tax of 10.56%. This withholding tax is eligible for credit in Italy. 3- Definition of technical fee as per DTAA means payments of any amount to any person other than payments to an employee of the company for following services :
8 Managerial services, Technical services and Consultancy services including services of other personnel. 4- No approval is required from Reserve Bank of India (RBI) which is Central Bank of the country for technical fee payment up to USD 1 million per project. Payment above USD 1 million is subject to approval from RBI. 5- Fee for Technical services is deductible expense in the books of accounts of Indian entity and reduces the tax liability of Indian entity legally.
9 R oyalty 1- Royalty as per Article 13 of one of the DTAA means payments of any kind received as a consideration for the use or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan secret formula or process, or for the use or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial or scientific experience. 2- Royalty is subject to withholding tax of 10.56% which is eligible for credit in foreign country.