India’s Taxes for Foreign-invested Entities · indirect and direct tax incentives, reductions in indirect taxes (sales tax and tax depreciation allowance), tax deduction for the

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Issue 18 • January 2013

From Dezan Shira & Associates

India’s Taxes for Foreign-investedEntities

Inside This Issue:

An Overview of India’s Taxes on BusinessIn this article, we give a brief overview of India’s major taxes and duties on business, as well as double taxation avoidance agreements.

Individual Income Tax Rates and DeductionsIndividual income tax (IIT ) payments are determined by income source, residency, amount, and other factors

India’s Tax Reforms in 2013The Indian Government has tabled a measure of reforms to be introduced to create a more favorable environment for foreign investment.

2 - INDIA BRIEFING | 2013

The year 2012 was eventful in India with the ongoing debate and implementation on foreign direct

investment (FDI) in multi-brand retail and of course the controversy about retrospective tax amendments.

Specifically, the decision of former finance minister, Pranab Mukherjee, to amend tax laws retrospectively

connected to the Vodafone case caused worry among foreign investors about ad hoc changes to India’s tax

regime. A committee headed by tax expert Parthasarthy Shome was pulled in to advise. In a statement in

early December, Finance Minister P Chidarmbaram said the government would soon announce changes

in the tax framework to bring about clarity on the retrospective taxation of indirect transfers.

This tax amendment controversy creates an excellent opportunity to provide an overview of the relevant

taxes for foreign-invested entities, including the most important points for 2013 – goods and service tax

(GST) reform, proposed tax revisions under the 2013-14 Budget, the entry into force of several double

taxation agreements (DTAAs), and new General Anti-avoidance Rules (GAAR).

We begin with an overview of India’s taxes on business, which includes a section on India’s double taxation

avoidance agreements, and then discuss individual income tax rates and deductions. Finally, we discuss

India’s tax reforms in 2013, including an article by Chandrahas Choudhury, New Delhi correspondent for

Bloomberg View, “Can India Tax Itself to Prosperity?”

Warm regards,

Olaf Griese

Olaf GriesePartner

Dezan Shira & AssociatesNew Delhi Office

[email protected]

Introduction

All materials and contents © 2013 Asia Briefing Ltd. No reproduction, copying or translation of materials without prior permission of the publisher.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. For further details or to contact the firm, please email [email protected], visitwww.dezshira.com to download the company brochure.

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Issue 18 • January 2013

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Advance Corporate Income Tax (ACT) Payment Schedule

2013 2014

Apr May Jun Jul Aug Sep Nov Dec Jan Feb Mar

July 1515% ACT

Sept 1545% ACT

Dec 1575% ACT

Mar 15100% ACT

* On estimated income, culumative percentage

Previously, there were large number of companies who had book

profits as per their profit and loss account, but were not paying

any tax because their income computed as per provisions of the

Income Tax Act was either nil or negative. To tax such companies,

minimum alternative tax (MAT) is levied on companies for which

income tax payable on the taxable income according to normal

provisions of the Income Tax Act is less than 18% of the adjusted

book profits. MAT is levied at 18.5% on book profits, plus surcharges

and education fee (cess).

In this article, we give a brief overview of India’s major taxes and duties on business, including Corporate Income Tax, Dividend

Distribution Tax, Minimum Alternative Tax, Value-Added Tax, Central Sales Tax, Goods And Service Tax, Customs Duty, Excise Duty

(CENVAT) Service Tax, Capital Gains Tax, Wealth Tax, and Withholding Tax.

The central and state governments provide various tax incentives for foreign investors establishing companies in India, including

indirect and direct tax incentives, reductions in indirect taxes (sales tax and tax depreciation allowance), tax deduction for the first ten years

of operation of new industrial units in specific areas, and special tax provisions for 100% export-oriented operations. Special economic

zones offer additional important benefits and tax reductions.

An Overview of India’s Taxes on Business

1. Corporate Income Tax

Corporate income tax is levied against profits and income under

the provisions of the Income Tax Act. Corporate income tax must be

paid by all types of foreign-invested entities, except for liaison offices,

which are not permitted to earn income. Foreign and domestic

companies are subject to different corporate income tax rates. A

company is considered a foreign company if its core management

(i.e. where key decisions on management are made) is located

outside of India for the duration of the year.

Corporate income tax must be paid in increments throughout

the year according to the advance corporate tax (ACT) payment

schedule.

Corporate Income Tax Rates*Domestic Companies 30% plus education fee (cess) of 3%Foreign Companies 40% plus education fee (cess) of 3%*surcharge may be applicable if total income is in excess of INR10,000,000

2. Dividend Distribution Tax

Dividend distribution tax (DDT) is levied against the distributing Indian company, not its shareholders, at 16.22% on dividends.

3. Minimum Alternative Tax



The tax rate on capital gains in India varies based on the type of asset

(shares, property, debt instruments), the length of time the investor

has held the asset, and whether the transactions have taken place

on a recognized stock exchange in India. When the income from

a sale is classified as business income under Indian law, it will be

taxable in India, but only if such income accrues or arises in India

or is attributable to a “business connection” in India. The rate of tax

applicable to the business income of non-residents is higher than

the rate applicable to domestic entities: approximately 42%.

Equities held for more than one year, other assets held for more

than three years, and real estate are considered long-term capital

and generally taxed at a basic rate of 20%. Short-term capital gains

(securities held for less than one year, three years for other assets) are

taxed at the normal corporate income tax rate, which is usually 30%.

Relief from certain types of capital gains is often sought through

double taxation avoidance agreements.

4. Value-added Tax, Central Sales Tax, and Goods and Service Tax

At time of writing, Indian states impose a Value-added Tax (VAT) on

most types of goods at a standard rate of 12.5%, with lower rates

of 4% and 1%. There is no VAT on imports into India and exports

are zero-rated. Businesses with less than Rs500,000 turnover are

exempt from VAT.

Central Sales Tax applies to goods traded interstate. If registered

dealers buy and sell goods for the purpose of trading, for

manufacturing inputs, or for specified activities, 2% sales tax applies.

The government plans to introduce Goods and Service Tax to replace

Central Sales Tax (CST), with planned implementation in April 2013.

The dual GST model would come with two tax rates: one that will

be charged uniformly across the states and another by the central

government. Legislation is still being shaped, but it is likely that

virtually all goods and services will be included, with minimum

exemptions including alcohol, tobacco and petroleum products.

5. Customs Duty

Customs Duty is applied to certain goods being imported into and

being exported from India. For most goods, customs duty rates

are up to 10% on the transaction value of imports or exports. An

education fee of 2% is levied on the aggregate of the customs duty

on imported goods.

The rate of customs duty depends on classification under the

Customs Tariff Act, which is aligned with the World Customs

Organization’s Harmonized Commodity Description and Coding

System of Tariff Nomenclature (HSN).

6. CENVAT (Excise Duty)

Central Value-added Tax (CENVAT) is levied on the manufacturing or

production of moveable goods at rates according to classification

in the Central Excise Tariff Act. Most products attract excise duties

at a rate of 10%, with the peak at 12%.

7. Service Tax

Those providing taxable services are liable to pay Service Tax, which is

levied at 12.36%. Small service providers are exempted from Service

Tax where value of taxable service does not exceed Rs1,000,000 in

the previous financial year. In October 2012, CBEC (Central Board

of Excise and Customs), the governing authority of Service Tax,

changed the service tax return filling from half yearly to quarterly.

8. Capital Gains Tax

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9. Wealth Tax

Wealth tax is charged annually at a rate of 1% on individuals and companies with over INR3 million in non-productive assets.

The Income Tax Act provides for deduction of tax at source on

payments. These provisions are also applicable in case of payment

made to non-residents. The person responsible for payments to

non-resident should deduct tax at source at the time of payment or

at the time of credit of the sum to the account of the non-resident.

Withholding tax rates for payments made to non-residents are

determined by the Finance Act passed by the Parliament.

Withholding Tax Rates*Interest 20% Dividends 0%Royalties 10%Technical Services 10%, plus applicable surcharge and

education cessAny other Services• Individuals• Companies/Corporate

30% of net income40% of net income

*The above rates are general and in respect of the countries with which India

does not have a Double Taxation Avoidance Agreement (DTAA).

10. Withholding Tax

ASSOCHAM Tax Proposals for 2013-2014 National Budget

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) 2013-2014 pre-Budget memorandum, released in December

2012, called upon the government to make a number of tax cuts. “The Indian industry is facing competitive disadvantages due to

complex multi-layered tax indirect tax structure having cascading effect on cost, high compliance cost and prolonged tax litigation,”

the pre-Budget memorandum stated.

Tax proposals in the memorandum included:

• Bringing the effective rate of corporate tax down from 32.45% to 25%.

• Reversing recent increases to service tax rates from the current 12% rate, back to the 8% rate in place two years ago, with revenue

loss offset by higher customs duty rates. By increasing customs rates, the government can protect the domestic industry from unfair

competition from countries like China, the press release stated.

• Increasing the exemption threshold for personal income tax to INR300,000 (US$5,500), to improve tax compliance rates, and boost

consumer consumption and savings.

• Industry-specific adjustments:

Addressing the tax treatment of the synthetic fiber industry, which attracts an excise duty rate of 12%, up from 4% in 2008, while

cotton fiber is exempt from excise duties.

Introducing a concessionary 2% service tax to support the construction services industry and partially offset the revocation of

the service tax credit that was in place prior to April, 2011.

Exempting the domestic repairs, maintenance and overhaul services sector from service tax to encourage foreign direct investment

in the aviation sector.

Removing the additional levy of tax by way of surcharge and education cesses on corporate assesses and education cess on

non-corporate assesses. The surcharges, including the education cess, were levied as a temporary measure.

For assistance with taxes in India, including tax planning, compliance and advisory, please contact Dezan Shira & Associates by emailing

[email protected] or visiting www.dezshira.com.?



Double taxation avoidance agreements (DTAs or DTAAs) aim to prevent the same income from being taxed by two or more states, while

also eliminating tax evasion and encouraging cross-border trade efficiency. DTAs prevent double taxation by allowing the tax paid in one

of the two countries to be offset against tax payable in the other country, and/or by providing exemptions or reduced tax rates for specific

income types such as interest, royalties, dividends. In India, withholding tax on dividends is 0% per the Tax Act, but DTAs serve to reduce

interest and royalty rates.

The table below reflects India’s double taxation avoidance agreements (DTAAs) in effect. In certain cases (such as in the case with states

from the former Soviet Union), rates represent treaties between groups of countries. In cases in which a treaty does not specify a maximum

withholding tax rate, or the maximum rate specified in a treaty is higher than the domestic withholding tax rate, the domestic rate applies.

India’s Double Taxation Avoidance Agreements (DTAAs)

PartnerCountry

Interest(%)

Royalties (%)

Armenia 10 10

Australia 15 10

Austria 10 10

Azerbaijan 15 10

Bangladesh 10 10

Belarus 10 10

Belgium 10/15 10

Botswana 10 10

Brazil 15 10

Bulgaria 15 10

Canada 15 10

China 10 10

Cyprus 10 10

Czech Republic 10 10

Denmark 10/15 10

Egypt - -

Faroe Islands 10/15 10

Finland 10 10

France 10 10

Georgia 10 10

Germany 10 10

Greece - -

Hungary 10 10

Iceland 10 10

Indonesia 10 10

Ireland 10 10

Israel 10 10

Italy 15 10

Japan 10 10

PartnerCountry

Interest(%)

Royalties (%)

Jordan 10 10

Kazakhstan 10 10

Kenya 15 10

Korea (R.O.K.) 10/15 10

Kuwait 10 10

Kyrgyzstan 10 10

Libya - -

Luxembourg 10 10

Malaysia 10 10

Malta 10 10

Mauritius - 10

Mexico 10 10

Moldova 15 10

Mongolia 15 10

Montenegro 10 10

Morocco 10 10

Mozambique 10 10

Myanmar 10 10

Namibia 10 10

Nepal 10/15 10

Netherlands 10 10

New Zealand 10 10

Norway 10 10

Oman 10 10

Philippines 10/15 10

Poland 15 10

Portugal 10 10

Qatar 10 10

Romania 15 10

PartnerCountry

Interest(%)

Royalties (%)

Russia 10 10

Saudi Arabia 10 10

Serbia 10 10

Singapore 10/15 10

Slovakia 15 10

Slovenia 10 10

South Africa 10 10

Spain 15 10

Sri Lanka 10 10

Sudan 10 10

Sweden 10 10

Switzerland 0/10 10

Syria 10 10

Taiwan 10 10

Tajikistan 10 10

Tanzania 10 10

Thailand 10/20 10

Trinidad & Tobago 10 10

Turkey 10/15 10

Turkmenistan 10 10

Uganda 10 10

Ukraine 10 10

U.A.E. 5/12.5 10

U.K. 10/15 10

U.S. 10/15 10

Uzbekistan 15 10

Vietnam 10 10

Zambia 10 10

Interest and Royalties Rates under India’s DTAAs

Page 11 Q&A: With which countries does India have pending tax treaties?

http://www.dits.deloitte.com/TaxTreatyRates/resultsTreatyRates.aspx
































































Individual Income Tax Rates and Deductions

Individual income tax (IIT) is the direct tax paid on personal income by an individual or a company to the central government. The

Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue

under the Ministry of Finance. In this article, we discuss income source and residency, income tax payment, the definition of salary,

income tax rates and tax deductions at source.

Income Source and ResidencyPersonal taxation in India depends on the income source and a person’s residential status, which is determined by the length of time spent

in India. Residential statuses include: resident and ordinarily resident (ROR), resident but not ordinarily resident (RNOR) or non-resident (NR).

Income Tax Act Residency Definitions

Under the Income Tax Act, an individual (non-Indian citizen or non-resident Indian) is said to be resident in India in any previous year, if he:

• is in India in that year for a period or periods amounting in all to 182 days or more; or

• having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India

for a period or periods amounting in all to 60 days or more in that year.

A person is said to be “not ordinarily resident” in India in any previous year if such person is an individual who has been a non-resident

in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in

India for a period of, or periods amounting in all to, 729 days or less.

Salary income is liable for personal income tax in India if the services are rendered in India, regardless of where the salary is received. RORs

are also taxed on other types of income worldwide, while RNORs and NRs are only taxed on other income when that income is received

or accrues/arises in India.

Income Tax PaymentAccording to the Income Tax Act, it is the obligation of the employer to withhold personal income taxes from the salary paid to an employee,

and deposit these taxes with the Indian revenue authorities. This applies to Indian employers and foreign employers, for domestic and

expatriate staff. Personal income tax is governed by the Central Board for Direct Taxes (CBDT), part of the Department of Revenue under

the Ministry of Finance.

A Permanent Account Number (PAN) is a 10-digit alphanumeric code, printed on an identification card, for the reference of the Income Tax

Department. Companies are required to obtain a PAN during the establishment process in order to file an income tax return, to manage

any correspondence with the Income Tax Department, and to submit challans for tax payment.

Definition of SalarySalary is defined by the Income Tax Act to include wages; pensions and annuities; gratuities; advance of salary; any fee, commission,

perquisites (e.g. the value of rent on accommodation provided by the employer) or profits in lieu of or in addition to salary or wages; any

encashment of leave salary; or any amount of credit to the provident fund of an employee to the extent that it is taxable.

Salary also generally includes what is known as a “dearness allowance;” a type of allowance provided for the higher cost of living in particular

cities or states. While this allowance is most important for government employees, certain private companies also offer it at their own

discretion.


Individual Income Tax Rates and Deductions

Selected Tax Deductions at Source 2012-13Act Nature of payment Cut-off Amount Rate*

194 C 1 Contracts INR30,000 2

194 C2 Sub-contracts/Advertisements INR30,000 2

194 D Insurance Commission INR20,000 10

194 I Rent (land & building) INR180,000 10

194 I Rent (P & M, Equipment, furniture & fittings)

INR180,000 2

194 J Professional/Technical charges/Royalty and Non-compete fees

INR30,000 10

194 LA Compensation on acquisition of immovable property

INR200,000 10

*Non-Hindu family business

For income to be treated as salary, the following conditions must be fulfilled:

• There must be an employer-employee relationship between the payer and receiver of income;

• Salary income must be real and there must an intention to pay and receive salary; and

• Salary may be from more than one employer and may be received not just from the present employer but also from a prospective

employer and in some cases even from a former employer, as is sometimes the case for pensions.

Salary can be charged in the year received or in the year earned, whichever is earlier, i.e. if the salary has been received first, then it will be

taxable in the year of receipt.

Allowances are categories of expenditures in India that are not taxable, provided they match certain specifications and do not exceed a

certain amount. They are given, among other things, for house rent, transport, medical care, meal coupons, leave-time travel and education.

Other taxes that may apply to an individual include capital gains tax and wealth tax.

A tax deduction is a changeable amount that can be

subtracted, or deducted, from assessee’s gross income,

lowering the amount of tax paid. All entities in India

(including foreign representative offices and Indian setups

like wholly owned subsidiaries) are required to make tax

deductions at source on employees’ salaries on behalf of

the Income Tax Department.

The payment and compliance schedule is as follows:

• Payment

7th of the next month;

April 30 for the month of March

• Quarterly returns

15th of the next month from the end of the quarter

• Issue of Certificate

30th of the next month;

for salaried certificates, by May 30

Tax Deductions at Source

Individual Income Tax Rates 2013-2014Assessment Rate General Women Senior citizen Individuals above the

age of 80 years2013-14 Nil 0 to 200,000 No separate slab 0 to 250,000 Up to 500,000

10% 200,001 to 500,000 250,001 to 500,000

20% 500,001 to 1,000,000 500,001 to 1,000,000 500,001 to 1,000,000

30% Above 1,000,000 Above 1,000,000 Above 1,000,000

2012-13 Nil 0 to 180,000 0 to 190,000 0 to 250,000 Up to 500,000

10% 180,001 to 500,000 10,001 to 500,000 250,001 to 500,000

20% 500,001 to 800,000 500,001 to 800,000 500,001 to 800,000 500,001 to 800,000

30% Above 800,000 Above 800,000 Above 800,000 Above 800,000

Income Tax Rates

For advice on tax in India, please email [email protected] or visit Dezan Shira & Associates at www.dezshira.com.?


A Look at India’s Coming Tax Reforms in 2013

India’s central and state governments are edging closer to an

agreement on a design and deadline for the Goods and Services

Tax, a comprehensive value-added tax that will replace many

smaller taxes and levies and will make India a unified market.

The proposed tax reform has been described as having the

potential “to be the single most important initiative in the fiscal

history of India.”

Long in the pipeline, the Goods and Services Tax has been on the

to-do list of the current government, the UPA, since it came to power

in 2004. Finance Minister P. Chidambaram laid out the need for the

switch in 2006, saying in his budget speech that year:

It is my sense that there is a large consensus that the country should

move towards a national level Goods and Services Tax that should

be shared between the Centre and States. I propose that we set

April 1, 2010 as the date of introducing GST. World over, goods and

services attract the same rate of tax. This is the foundation of a GST.

But that date has come and gone without the impasse over the GST

being solved, and so have further deadlines. The implementation

of the new system has been held up on many fronts: disputes over

its precise shape, resistance on the part of some state governments

because they fear a loss of revenue from the levy of state taxes,

the need to amend the Constitution (which has a different view

of taxation powers divided between the central government and

the state than the one the GST envisages), and the absence of any

concerted pressure from the citizenry. Tax reform is a subject less

conducive to strong feelings than, say, the proposed anti-corruption

bill that has generated so much sound and fury in India.

But not only would the implementation of the Goods and Services

Tax increase government revenue, it would have a tonic effect on

the battle against corruption, too, by simplifying a byzantine tax

system and encouraging what economists call “virtuous growth.”

A strong case for the GST was made recently in Tehelka by Jaitirth

Rao, who pointed out that the current system of multistage taxes

on the manufacture and sale of goods and services in India often

has a cascading effect, and unfairly penalizes tax compliance and

rewards evasion. This system could be rationalized by a sophisticated

last-point retail tax like the GST.

As an investment destination, contemporary India has relatively high tax rates. Corporate Income Tax rates are 30-40 percent,

while on top of this Value-added Tax (VAT) is 12.5 percent and Dividends Taxes run to 15 percent. Individual Income Taxes are

staggered depending upon the amount earned, but reach a high of 30 percent. We can directly compare these with China

as follows:

Major Headline Tax Rates: China vs. IndiaCIT VAT* Dividends** IIT***

China 25% 17% 10% 45%

India 30-40% 12.5% 16.22% 30%

*Varies by industry and geographically **Not including rates given under tax treaties ***Highest rate

The Indian Government is well aware of the need to create a more favorable environment for foreign investment into the country, and

has tabled a measure of reforms to be introduced. Most of these reforms, if passed, would significantly decrease India’s tax threshold, and

if passed, would spur an investment boom into the country. After all, no one wants to pay high levels of tax, including India’s politicians.

Tied up with the tax reform program is a re-evaluation of VAT and Goods and Services Tax, which are partially collected by the Central

Government and partially by each State. Disagreements between these two levels of government over who collects what have delayed

the reforms that were first tabled seven years ago. To shed further light on the tax reform situation, we are pleased to present a piece by

Bloomberg View’s India correspondent, Chandrahas Choudhury.

Can India Tax Itself to Prosperity?


India’s Tax Reforms in 2013

Rao also argued that interstate taxes have created barriers to trade

that are holding back the prosperity potentially available to a vast

country that works as a unified market, and pointed to the contrast

between the U.S. and the smaller economies of South America as

an example:

The US is one large market for goods, services, capital and labor.

The countries of Central and South America are all relatively ‘small’

markets and they all have barriers to trade and investment in small or

large measure. Just imagine if there had been trade barriers between

New York and New Jersey or between Pennsylvania and Virginia. That

is how Latin America is organized. The existence of a large market

without trade barriers has been perhaps the single most important

reason for the economic success of the US.

The structure of sales tax in India has a built-in inflationary bias also.

There are repeated instances of double or triple taxation as raw

materials are turned into intermediate goods and then into final

consumer goods. In any intelligently designed indirect tax system

anywhere in the world, cascading of taxes and the consequent price

escalation is avoided by allowing each seller to take into account

the taxes he/she has paid while buying the inputs and “offsetting”

the taxes paid earlier in the supply chain. But given that the taxes

are levied by different states, this has not been possible in India.

For so long now, we have known that the multiple state sales tax

process is bad news. It makes us poorer as a country; it is inefficient

and inflationary; it encourages criminal activity as people take

recourse to smuggling rather than legitimate inter-state trade;

it reduces state revenue in more ways than one and it penalizes

honest citizens.

Our large population and large market are strategic assets for India.

They can be a source of competitive advantage. We are in danger

of frittering this advantage away by perpetuating the existence of

“mini markets” and internal tariffs.

In a recent address to the Indian business confederation ASSOCHAM,

the economist Vijay Kelkar, chairman of a government-appointed

committee that produced a 2009 report on GST, pointed out the

inefficiency of a tax system that required a freight truck travelling by

road between Delhi and Chennai “to cross five state borders and 10

checkposts.” He gave a sense of the thicket of taxes that would be

swept out in one go by the implementation of the proposed dual-

GST model, one designed to ensure that the central government

and the states received equal shares of revenue from the tax:

Apart from VAT, stamp duty, vehicle tax, taxes on goods and

passengers, taxes and duties on electricity, entertainment tax, entry

tax, luxury tax, taxes on lotteries, betting and gambling, purchase

tax as well as all State cesses and surcharges will be subsumed into

the State GST. Central Sales tax will stand abolished.

From the government of India side, Central excise, additional excise

duties, service tax, Additional Customs duty (CVD), and all cesses

and surcharges (other than educational cess) will be subsumed

into the Central GST.

Kelkar has also suggested that GST implementation would increase

India’s gross domestic product by 1 percent (this contention is

supported in a working paper by the economists Ehtisham Ahmed

and Satya Poddar), bring down real-estate prices and make Indian

manufacturing more competitive in the global market.

Many of the authors of op-eds or academic papers on the subject of

the GST have quoted from the ancient Indian thinker Kautilya’s text

on statecraft, the Arthashastra, and especially his observation that

“all undertakings [of the state] are dependent first on the treasury.”

Currently the treasury of India, a country that is home to more than

a sixth of the world’s population, is messily and inefficiently run,

both on the side of personal income-tax -- India currently has a

tiny base of no more than 35 million taxpayers -- and on the side of

taxes on manufacturing and supply. P. Chidambaram, the country’s

finance minister, and the finance ministers of India’s states now have

a chance to push through a foundational reform, one that would

impact the economic life of every Indian citizen, over the next three

months after the GST plan is vetted and refined by two committees.

This piece was first published on Bloomberg View on Nov 13, 2012.

Chandrahas Choudhury is an Indian novelist and a regular contributor

to Bloomberg View.

For assistance with taxes in India, including tax planning, compliance

and advisory, please contact Dezan Shira & Associates by emailing

[email protected] or visiting www.dezshira.com.

Many of the authors of op-eds or academic papers on the subject of the GST have quoted from the ancient Indian thinker Kautilya’s text on statecraft, the Arthashastra, and especially his observation that “all undertakings [of the state] are dependent first on the treasury.”


Q & A

Further Resources

Find Additional Publications onwww.asiabriefing.com/store

With which countries does India have pending tax treaties?

In 2013, a number of new tax treaties will come into force for India, including agreements with Estonia, Lithuania, and

Nepal. Several tax treaties are still pending, including the protocol to the existing treaty with the United Kingdom that

was signed in October 2012, but has yet to come into force. This protocol altered the provisions relating to information

exchange, and further enables tax authorities to exchange banking information irrespective of domestic interests.

Pending Tax TreatiesDates Tax Rate

Estonia The 2011 treaty entered into force June 20, 2012 and will apply in India from April 1, 2013 (January 1, 2013 in Estonia).

10% on interest and royalties

Ethiopia A tax treaty was signed on May 25, 2011, but is not yet in force. 10% on interest, royalties, technical services fees

Lithuania A tax treaty entered into force July 10, 2012 and will apply in India from April 1, 2013 (January 1, 2013 in Lithuania).

10% on interest, royalties, technical services fees

Malaysia India and Malaysia signed a tax treaty on May 9, 2012 that will replace the existing treaty, but the new treaty is not yet in force.


Nepal The 2011 treaty between India and Nepal entered into force on March 16, 2012 and applies in India as from April 1, 2013 (July 16, 2013 in Nepal), replacing the current treaty.

10% on interest and 15% on royalties (lower 10% domestic rate applies)

United Kingdom

India and the U.K. signed a protocol to the existing tax treaty on October 30, 2012, but the protocol is not yet in force.

No changes are made to the withholding tax on interest or royalties

Uruguay India and Uruguay signed a tax treaty on September 8, 2011, but it is not yet in force.


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India’s Taxes for Foreign-invested Entities · indirect and direct tax incentives, reductions in indirect taxes (sales tax and tax depreciation allowance), tax deduction for the