Guide

Tax Guide for India

Our tax guide for India provides you with knowledge about taxing digital transactions for non-resident e-commerce operators, an overview of the goods and services tax as well as information about incentives for exporters.

Mumbai, view of the Taj Mahal Hotel

Primarily, India has two types of taxes i.e. direct tax and indirect tax. Direct tax includes corporate income tax, and individual tax which is imposed on the taxpayers’ income or profit. Foreign companies are only liable to pay taxes in India with respect to: i) income received or deemed to be received in India; or ii) income which accrues or arises in India or which is deemed to accrue or arise in India. The rate of taxation is prescribed for different types of income streams, which vary from 5% to 40%. Since India has entered into a Double Taxation Avoidance Agreement (DTAA) with Switzerland, the rate of taxation for Swiss residents is restricted to the rates prescribed in the DTAA. However, in case the Swiss residents carry out their business through actual presence in India (i.e. this constitutes Permanent Establishment), the rate of taxation would be 40% (plus applicable surcharge and cess) on net basis.

Taxing digital transactions for non-resident e-commerce operators

The Indian Government had introduced the concept of Equalisation Levy (EL) in the year 2016 with the intention of taxing the digital transactions. Its applicability was restricted only to transactions involving advertising on the digital platforms. However, with effect from 1 st April 2020, the government of India has widened the scope of EL. Under the expanded scope, a non-resident ‘e-commerce operator’ is liable to 2% EL on the consideration received from ‘e[1]commerce supply or services’ made or provided or facilitated by it to a specified set of customers.

There are various types of entities which can be incorporated in India. The income tax and regulatory compliance requirements for each type of entity varies.

Goods and Services Tax: an overview

Furthermore, in India, every supply of service and/or goods will attract GST unless the same is specifically exempted by the government. GST shall be levied at the rates of nil, 5%, 12%, 18% or 28% on the basis of classification of goods and/or services. Unlike the erstwhile indirect tax regime, the GST law provides for seamless flow of input tax credit without cascading of taxes, except in the case of prescribed transactions. Exports are zero-rated against which, a taxpayer can claim refund of GST discharged on such export or of unutilized input tax credit. Services imported from outside India are liable to tax under reverse charge mechanism, while the value of supplies between related persons, including distinct persons, should be equivalent to the open market value.

Incentives for exporters

The Government has extended incentives to exporters by way of schemes such as Foreign Trade Policy as well as Duty Drawback under the customs law. Special Economic Zones in India are popular investment destinations for many multinationals, with indirect tax incentives on procurement and exports although direct tax sops would no longer be available to new units.

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