|
Doing Business
in India - An Overview
Taxation
Scope
of Income Tax
Income
Tax is leviable on taxable Income. The Income Tax Act, 1961 levies
income tax on the following sources of income:
- Profits and gains
of business or profession
- Income from salary
- Income from house
property
- Capital Gains
- Income from other
sources.
Income
is chargeable to tax with respect to: -
- Income Received
in India: Where income is received in India, it is wholly taxable
in India, irrespective of the residential status of
the taxpayer.
- Income accruing
or arising in India: Income, which accrues or arises in India,
is chargeable to tax for all categories of persons,
whether resident or non-resident. Furthermore, income deemed
to accrue and arise in India is also chargeable to tax for all
categories of persons, whether resident or non-resident.
Residential
Status
A
taxpayer is primarily divided into two categories: -
- Resident in India
- Non-Resident in
India
Resident
in India
A
person is considered Resident in India if he fulfills any of the
following conditions:-
- if he is in India
in a relevant year for a period aggregating to 182 days or more;
- if he is in India
for a period aggregating to 60 days or more in the relevant year
and has been in India for an aggregate period of 365 days or more
in the preceding 4 years.
A
person is considered to be not ordinarily resident in India, if
he is basically a resident in the year of evaluation, and: -
- His total stay
in the last seven years preceding the year of evaluation was less
than 730 days, or
- He was not resident
in 9 out of 10 years, proceeding the year of evaluation.
A
non-resident is a person who is not a resident in India .
Residential
Status of Non Individual Assesses
Company
A
company is said to be resident in India if: -
- It is an Indian
Company; or
- The control and
management of its affairs is situated wholly in India.
Association
of Persons & Partnerships
Resident
A partnership firm or an association of persons is considered to
be resident in India if its control and management is wholly or
partly situated in India.
Non-resident
A partnership firm or an association of persons is considered to
be non-resident if the control and management of its affairs is
situated wholly outside India.
Rate
of Income Tax
The
rates of income tax applicable for companies for financial year
2002 -2003 are as under:
- In case of Domestic
Company 35.875%.
- In case of a Foreign
Company 41%
Application
of Double Taxation Avoidance Agreement (DTAA's)
The
Double Taxation Avoidance Agreements provide for concessional rate
of tax in respect of certain categories of Income like dividends,
royalty, technical services fees, interest, etc. They provide for
favorable methods of determining taxable business profits, elimination
of taxation of the same income in both the treaty countries and
procedures for obtaining tax credits. Most treaties follow the Organisation
for Economic Co-operation and Development Model.
India
has entered into DTAA's with most countries of the world.
Advance
Ruling
The
Government of India has provided for Authority for Advance Ruling
(AAR) with an aim to obviate any kind of complexities with respect
issues of fact or law in relation to transactions which have been
undertaken or are proposed to be undertaken by a non-resident.
Any
non-resident can file an application for an advance ruling giving
complete details of the transaction and the queries that need to
be answered.
The
advance ruling of the AAR is binding on the Commissioner of Income
Tax and other subordinate income tax authorities. The advance ruling
continues to remain in force unless there is a change in law or
in the facts on the basis of which it was pronounced.
Withholding
Tax
The
Income Tax Act, 1961 provides for certain categories of persons
to make deduction of tax at source while making payments to contractors,
payment of salary, interest, commission, brokerage, royalty and
fees for technical services. The rate of withholding tax depends
on the nature of income.
Major
Indirect Taxes
Central
Excise: Excise is the duty on excisable goods manufactured or produced
in India. The Central Excise Act, 1944 is the basics for charging
of duty on goods manufactured or produced.
Customs
Duty: It is leviable in course of export or import of goods.
Besides
the aforesaid, Countervailing Duty and Special Additional Customs
Duty is also payable on the import and export of goods. In order
to afford protection of certain domestic industries and to prevent
anti-dumping, the Authorities may also levy protective and anti-dumping
duties.
Central
Sales Tax: Central Sales Tax is levied in the sale of goods
which is occasioned by the movement of goods from one state to another
within India. It is levied by the Central Government. A flat rate
of 4% Sales Tax is levied by the Government where the sale of goods
in course of inter state trade and commerce is between two registered
dealers. In all other cases, sales tax is 10%.
Local
Sales Tax: Besides the Central Sales Tax, the State Governments
levy local sales tax with respect to sales with in a particular
state. The rate of tax leviable varies from state to state.
Works
Contract Tax: Works Contract Tax is the tax levied on the transfer
of property in goods involved in the execution of a works contract.
It is confined only to the goods actually used/supplied in any form
and not in respect of the consideration of the entire works contract.
Value Added Tax: The Indian states, facilitated by the Central
Government, will switch to modern system of Value Added Tax (VAT)
replacing current sales tax system from 1st April'2003.
The design of VAT envisages VAT at two levels:
- Central VAT covering
manufacturing activities; and
- State VAT covering
sale and/or purchase of goods.
State VAT will thus be multi-point system of taxation of goods with
an input tax credit mechanism for trade within each state. The current
design will have a mix of origin and destination principle.
Services are taxed separately and will not be merged with CENVAT
or State VAT immediately.
Service Tax: Sixty-One services
attract a tax called the Service Tax. The rate of such tax is 8%
(effective 1st April'2003)
|
