Corporate Taxation in India

Q&A session about corporate taxation in India with Sahil Aggarwal,  Dezan Shira & Associates Manager for International Business Advisory (India).  

Is the basis of corporate taxation same for both Indian and foreign companies in India?

Indian companies are taxed on their worldwide income, regardless of the source and origin of the income generated. Whereas foreign companies are taxed only on the income generated from operations in India or any income which is considered to have arisen in India.

Income of foreign companies derived in India can include royalty, fees for technical services, interest, gains from sale of capital assets situated in India (including gains from sale of shares in an Indian company), dividends from Indian companies, etc.

Further, there are different tax rates for Indian companies and foreign companies.

What are the scenarios which may lead to double taxation?

Double taxation can arise in the following cases for a firm:

1. The firm may reside in one country but also generate income from overseas operations in another country leading to being taxed in both the countries.
2. The firm may be taxed on its world income in more than one country. It may be taxed on the basis of residence in one country and simultaneously on the basis of nationality of the owner in another. This is called concurrent full liability to tax.
3. The firm may be taxed in two or more countries even if it is not a resident in any one of them. Double taxation may arise here if the firm is taxed in the country where it has a permanent establishment and in the country from where it generates its income.

Is a liaison office subject to taxation?

A liaison office (LO) is not subjected to taxation as it does not generate or accrue an income in India due to being prohibited to conduct commercial / trading / industrial activity, directly or indirectly.

An LO is to be maintained via outward remittances received from its parent company abroad.

What are the taxation related incentives available to foreign companies setting up units in Indian SEZs? 

1. 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
2. Exemption from GST on procurement of capital goods, raw materials, consumable spares, etc. from the domestic market.
3. Exemption of import duties on the same if exported from abroad without any license or specific approval.
4. Exemption from GST or other levies on the supply of goods from DTAs.
5. Exemptions from industrial licensing for manufacture of items reserved for small sector industries.