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					Deloitte Belgium Tax Quarterly
Indian tax reforms




Indian tax reforms
The Indian economic boom of recent years has really cemented the world’s second most
populous country’s place on the world business stage, with its globally competitive services
sector registering particularly rapid growth. Belgian politicians and businesses - like those of
many countries - have made a concerted effort to increase bilateral trade and investment with
India. New fiscal measures for 2008/09 will have an impact on Belgian companies already active
there, or which are considering investing in India in the future.


The Indian Minister of Finance, P. Chidambaram, introduced the            The new rule provides an incentive for Belgian companies holding
new fiscal measures for the period 2008-2009 on 29 February 2008,         shares in Indian companies to take a look at the way the shares are
in the framework of the Indian Budget 2008-2009.                          held, and see if appropriate planning could result in a reduction of
                                                                          the dividend distribution tax.
Corporate Income Tax                                                      Corporate income tax rate
Dividend distribution tax                                                 To the disappointment of the Indian corporate community which
Arguably the most notable fiscal measure for Belgian investors is in      was expecting a reduction of the corporate income tax rate, the
relation to the Indian dividend distribution tax. Dividends distributed   Indian Minister of Finance left the corporate income tax rate
by Indian companies to their shareholders are in principle subject to     unchanged. Indian companies are taxable on their worldwide
a dividend distribution tax of 16.955% (15% tax increased by the          income at a corporate tax rate of 30% increased by 3% education
3% education cess and 10% surcharge). The new fiscal measure              cess, plus a 10% surcharge if the taxable income exceeds
allows the Indian parent company to offset dividends received from        10 million Indian Rupees (INR). For branches of foreign companies,
its Indian subsidiary against dividends distributed by the parent         the corporate tax rate is 40% increased by 3% education cess, while
when computing the dividend distribution tax liability. This means        the surcharge is 2.5%.
that the 16.995% dividend distribution tax will solely be due on the
difference between the dividends distributed by the parent itself and
the dividends received from its subsidiary.                                 Effective tax rates for company with      Indian       Branch of
                                                                                                                     company        foreign
However, in order to benefit from the dividend distribution tax                                                                    company
credit, there are several conditions to be met:
• The Indian parent company must hold more than 50% of the                  Taxable income not exceeding              30.9%          41.2%
  nominal value of the equity share capital of the Indian subsidiary;       10 million INR
• The Indian subsidiary must have paid dividend distribution tax on
  the dividends distributed to the Indian parent; and                       Taxable income exceeding                 33.99%          42.2%
• The Indian parent may not be a subsidiary of any other company            10 million INR
  (i.e. any other company may not own more than 50% of the
  shares of the Indian parent company).
                                                                          (Using an average approximate exchange rate for
The new measure will take effect retroactively as of the tax year         1/1/2008-30/05/2008 of 61.5 INR to the euro, 10 million INR is
starting 1 April 2007.                                                    about 162,600 EUR.)




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                                                                                                             Deloitte Belgium Tax Quarterly
                                                                                                                            Indian tax reforms




Tax holiday                                      Securities transaction tax
Last year, a new five-year tax holiday was       The rate of the securities transaction
introduced for convention centres and 2, 3       tax remains unchanged. Tax paid at
or 4 star hotels in Delhi and the districts of   the occasion of a securities transaction
Faridabad, Guragon, Gautam Budh Nagar            entered into during the course of business
and Ghaziabad. With a view to further            constitutes a tax deductible business cost for
stimulating tourism in India, the tax holiday    Indian corporate tax purposes.
measure is extended to new 2, 3 or 4 star
hotels located in specific districts having a    Service tax
UNESCO-notified World Heritage Site. The         In India, a “service tax” (of 12%, increased
five-year tax holiday will only be applicable    by 3% education cess) applies to more than
to hotels which started functioning at any       100 services, such as advertising, broking,
time during the period 1 April 2008 -            intellectual property services, financial
31 March 2013.                                   leasing, and management consulting. India
                                                 increasingly relies on the taxation of the
Improvement of health care in India is           services sector to broaden the indirect tax
an aim encouraged by fiscal policy, with         base. The rate of the service tax has been
hospitals active in rural areas able to          maintained and the following categories of
benefit from a five-year tax holiday. The        services added to the list of services which
tax holiday has now been extended to             are subject to the service tax:                  Deloitte Indian Services
hospitals located anywhere in India, except      • information technology software services,
specifically excluded areas (i.e. the urban      • internet telecommunication services,
                                                                                                  Group
agglomerations of Greater Mumbai, Delhi,         • recognised stock exchange services,            Business and trade practices, and
Kolkata, Chennai, Hyderabad, Bangalore           • commodity exchange services,                   accounting and tax rules, can differ
and Ahmedabad, the districts of Faridabad,       • processing and clearing house services,        widely between Belgium and India. Both
Gurgaon, Ghaziabad, Gautam Budh                  • supply of tangible goods for use services,     Indian businesses investing or operating
Nagar and Gandhinagar and the city of               and                                           in Belgium, and Belgian businesses
Secunderabad). The five-year tax holiday will    • investment management service under            with operations in India, need to
only be applicable to hospitals which started       ULIP.                                         understand the other party’s approach.
functioning at any time between 1 April                                                           The Deloitte Indian Services Group
2008 and 31 March 2013.                          Belgian companies that are active in India,      facilitates international business through
                                                 providing one of the above services, will be     communication and coordination
                                                 subject to the service tax in the future and     between clients and Deloitte specialists,
Other taxes                                      should plan accordingly.                         and translation of a wide range of
Short-term capital gains on shares                                                                complex matters into understandable
Tax on short-term capital gains arising on       Banking Cash Transactions Tax                    concepts.
the sale of listed shares (and units of mutual   If an Indian company withdraws an amount
funds) will be increased from 10% to 15%,        exceeding 100,000 INR a day, according           The leader of the Indian Services Group
increased by 3% education cess and 10%           to Indian law, a tax of 0.1% is due on the       of Deloitte Belgium is William Blomme
surcharge if the taxable income exceeds          amount withdrawn. The banking cash               (wblomme@deloitte.com). According to
10 million INR. “Short-term” capital gains       transactions tax will be abolished as of         William, “Belgium is an excellent gateway
on shares (and units of mutual funds) are        1 April 2009.                                    for investors into Europe. With Indian
capital gains on investments kept for a                                                           export trade continuing to rise, our Indian
period of less than one year.                                                                     Services Group is actively working with
                                                                                                  companies interested in the opportunities
                                                                                                  in Belgium and beyond. Conversely, for
  Conclusion                                                                                      Belgian businesses looking at investing
                                                                                                  or operating in India, we can facilitate
  Like any other system, Indian tax law continues to develop and evolve to its economic           their journey – whether that be through
  climate and priorities. For Belgian investors in India, there could be benefits in the new      practical and comprehensive advice from
  dividend distribution tax credit; on the flipside, the extension of the service tax might       our accountants, auditors, consultants,
  well require new procedures, and entail additional costs. The effect of all the new rules       financial advisors or tax experts in the
  should be examined.          •                                                                  Belgian firm, or by coordinating with
                                                                                                  colleagues in India to provide on-the-
  BART VERHELST, STEVEN GILS                                                                      ground support there.”




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