How Has the Indian Tax Legislation Progressed?
We speak to Shipra Walia about how India has progressed in terms of its tax legislation.
For an update on tax in India, Finance Monthly speaks with Shipra Walia, Managing Partner & Lead Consultant at W S & Co. – a Chartered Accountancy firm, rendering comprehensive professional services. Based in Noida, Uttar Pradesh, the company offers statutory audits, GST audit and compliances, tax consultancy (direct & indirect including international and domestic law), valuation, advisory on issues covered under Double Taxation Avoidance Agreements, expat taxation, audit, management consultancy, accounting services, secretarial services, representations before various authorities including Set Com and DRP etc.
How is the corporate tax system structured in India?
India has a dual taxation structure. One is direct tax paid by the taxpayer directly to the government like stamp duty, income tax, etc. and the other one is the indirect tax that reaches to the government through supply chain which is GST/VAT/Excise Duty/Customs duty. While a resident is taxed on their worldwide income, a non-resident is taxed only on income that is received in India, or that arises or is deemed to accrue in India.
How complex is the tax system in India? Are tax disputes commonplace and how are disputes resolved?
Every tax system has some inherent complexities as per the economy of the country. However, the equivalent measures are also there to curb or meet any tax litigations. Further, there are various laws which help with resolving litigations or reaching an agreement at an acceptable level for both parties. Similar, provisions exist for solving conflicts in cross-border transactions. For example, the Double Taxation Avoidance Agreements between India and foreign companies provide for MAP i.e. Mutual Agreement Procedure.
As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws
Have there been any amendments to India’s tax legislation since we last spoke in 2017?
Recently, India has included the concept of Place of Effective Management (POEM) in our tax legislation. Previously, if the control and management of a company was not located wholly in India, this was considered as a foreign company.
As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws. The rules also clarify the computation of active and passive business activity, the adherence to global group policies on accounting, HR, IT, supply chain. Additionally, routine banking operations shall not lead to POEM in India and strategic and policy decisions should be relevant in determining POEM, as opposed to routine operational decisions for oversight of day-to-day business operations.
Similarly, a new Goods and Service Tax (GST) was implemented in India in July 2017. GST’s mission is to exclude the multiple individuals and authorities involved in the process and is seen as one of the most influential transformations in the field of tax.
What tax considerations must be taken into account for foreign businesses who wish to expand their business operations in India?
India is a prominent upcoming market. With the government’s focus on “Made in India”, there are various tax benefits available in the country - either based on the product or the activity of the specific business. Under the changes, the initiatives are also driven towards improving exports with various countries.
With the government’s focus on “Made in India”, there are various tax benefits available in the country.
Tax benefits for angel investors, flexible valuation norms, no tax on remittance of profits by a branch of a non-resident company to its Head Office, no dividend distribution tax on Limited Liability Partnerships are amongst the few inbuilt attractions for expanding your business operations in India.
What tax incentives are in place for investors operating in India?
Tax incentives provided in the Indian tax structure can be broadly classified into location-based incentive, industry-specific incentives and activity based incentives. There are various SEZs set up for special benefits to 100% export-oriented units, as well as special international financial services centres (IFSC) which also serve as a catalyst for foreign investors that handle cross-border financial products and services.