【About Us】
DAGON TAX, located in Shenzhen, has a team of experts in the field of tax law, focusing on professional services in the fields of corporate compliance, high-net-worth private, financing and M&A, capital market taxation, tax dispute resolution, international taxation, transfer pricing and anti-avoidance response.
【 Department of International Revenue
The purpose of this column is to share articles related to international taxation, and we can provide non-resident investment in China, tax treaty treatment and tax incentive application, investment structure planning, profit repatriation, exit plan planning and other tax-related services.
Organized by the Grand Duke team
Reprinted with the source
In India, the power to collect taxes is mainly concentrated between the federal central government and the states, with local municipal governments responsible for the collection of small amounts of taxes. The types of taxes levied by the central government include direct taxes and indirect taxes, which are mainly composed of corporate income tax, individual income tax and property tax, and indirect taxes mainly include goods and services tax (introduced on July 1, 2017) and customs duties. The state government mainly collects goods and services tax, stamp duty, state excise tax, entertainment and gaming tax, land revenue tax, etc. The types of taxes levied by local city governments mainly include property tax, market entry tax, and tax on the use of public facilities such as water supply and drainage.
01 Corporate income tax
Enterprises should pay corporate income tax on their income. There is no separate capital gains tax in India, and capital gains are included in the corporate income tax taxable income.
The tax year in India runs from April 1 to March 31 of the following year.
A resident business is a business that is incorporated in India and has an actual management office located in India. Corporate income tax is payable in India on its worldwide income (unless there is a specific exemption). There are 4 types of taxable income: (1) operating profits or gains, and (2) property income, including self-use, rental residential and commercial buildings. The property does not fall into this category if it is used for the company's business operations, (3) capital gains, and (4) income from other sources, including lottery winnings, tournament winnings, and interest on securities. Competitions include horse racing, card racing and other gambling games.
The basic corporate income tax rate for domestic enterprises is 30%. In addition, enterprises should also pay the corresponding surtax and health education surcharge according to the amount of corporate income tax. The corporate income tax (CIT) rates applicable to both Indian and foreign companies for the 2022/23 tax year are as follows:
A company that does not meet the criteria for a resident enterprise is a non-resident enterprise. From a tax point of view, a branch office of a foreign company in India will be considered an extension of the foreign company and will therefore be considered a non-resident company for tax purposes. Corporate income tax is levied on income derived from permanent establishments, income from business ties with India, and income derived from India.
Non-resident businesses and their branches are normally subject to a corporate income tax rate of 40 per cent, plus a surcharge of 2 per cent (if net income exceeds Rs.10 million but not more than Rs.100 million) or 5 per cent (if net income exceeds Rs.100 crore) and a health education surcharge of 4 per cent of the tax payable. The specific tax rates are shown in the table below:
02 Individual income tax
Indian residents are taxed on their worldwide income. An individual residing in India who is not an ordinary resident is liable to income tax only on his income earned in India, deemed to have arisen or made in India, income received in India, or income received outside India from a company controlled or incorporated in India by a person from India. An individual is considered a resident of India if he or she meets any of the following criteria:
(1) Individuals who have stayed in India for 182 days or more in a tax year (the tax year in India is from 1 April to 31 March of the following year);
(2) Individuals who have stayed in India for 60 days or more in a tax year and have stayed for a total of 365 days or more in the four preceding tax years.
An individual is considered a non-resident resident if he or she meets either of the above criteria or any of the following:
(1) be a non-resident of India for 9 of the preceding 10 tax years;
(2) The total period of stay in India in the preceding 7 tax years is less than or equal to 729 days.
Taxable income: includes all amounts in cash or in kind resulting from an individual's employment. Salaries, pensions, bonuses, commissions, additional allowances in lieu of wages, reimbursement of personal expenses, securities or stocks, pension contributions, etc., are all included in employment income. India's resident personal income tax system is also classified and comprehensive, and the personal income tax rate table is as follows:
An individual with gross annual taxable income exceeding Rs 50 lakh is subject to additional tax. The surcharge rate ranges from 10% to 37%.
Taxpayers who do not meet the criteria for personal judgment as residents are regarded as non-resident taxpayers. Non-residents are only required to pay tax in India on income derived or deemed to be sourced in India.
Special tax rates apply to non-residents. Non-resident taxpayers are subject to withholding tax at the same rate as resident taxpayers, plus a 15% surcharge and a 4% health education surcharge if the annual net income exceeds Rs.10 million.
Investment income and long-term capital gains from foreign exchange assets are taxed at 20% and 10% respectively and cannot be deducted at all.
Long-term capital gains made by non-resident taxpayers on the sale of unlisted securities are taxed at a rate of 20% if they have claimed indexed interests and 10% if they have not claimed.
The personal income tax rate corresponding to royalties and technical service fees is 10%.
The tax rate is 20% on the specific income of non-resident sports or recreational persons.
03 Goods and Services Tax
After the implementation of the goods and services tax (GST) reform in India, the goods and services tax includes value-added tax (VAT), central consumption tax, vehicle tax, goods and passengers tax, electricity tax, entertainment tax and other taxes, etc.
There are four types of GST in India: (1) Central GST (CGST) ;(2) State GSST (SGST) ;(3) Union Territory GST (UTGST) ;(4) Integrated GST (IGST).
India's goods and services tax reform has been followed by a "two-track system", with the central and state governments collecting their own GST, and inter-state transactions leviing a flat GST. Specifically, intra-state transactions are subject to the Central Goods and Services Tax and the State Goods and Services Tax respectively, and the central government collects the comprehensive goods and services tax on inter-state transactions or import trade.
The new tax will be levied at different levels and deducted by category. The specific deduction principles are:
(1) Cross-deductions are not allowed for the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST);
(2) Integrated Goods and Services Tax (IGST) can be cross-deducted with CGST and SGST;
(3) Priority deduction of the same tax. The specific order is as follows: CGST is deducted first with CGST, then with IGST, and cannot be deducted with SGST; SGST is deducted with SGST first, then with IGST, and cannot be deducted with CGST; IGST is deducted with IGST first, then with CGST, and finally deducted with SGST.
At present, there are 4 basic rates of GST, namely 5%, 12%, 18% and 28%, and each band is the combined rate of CGST and SGST, i.e. 50% for each. In addition, in addition to the GST rates mentioned above, the GST Act also imposes additional taxes on the sale of certain goods, such as cigarettes, tobacco, inflatable water, gasoline, and motor vehicles, with rates ranging from 1% to 204%.
A simplified levy is imposed on small businesses with an annual turnover of up to Rs.5 million in the previous year, at rates that vary by sector: 2% for manufacturing, 5% for food services and 1% for other sectors (i.e. 1%, 2.5% and 0.5% for CGST and SGST respectively). The simplified levy does not apply to goods and service providers (other than hotel services) for interstate transactions and special categories of manufacturers.
04 Other taxes
Stamp duty is levied on the basis of the number of articles of association, memorandum of association, documents of transfer of property, bills of exchange, bills of lading, and certificates of division of property. The rate of stamp duty applicable varies from state to state. The tax rate for immovable property is generally between 5% and 10%, and the tax rate for movable property is generally between 3% and 5%, usually based on the consideration received from the transfer or the market value of the transferred property, whichever is higher.
Excise duty is a tax levied on the manufacture of products in India and is paid by the producer of the product. Most products are subject to a flat rate of 12% and an additional education tax at 3% of the GST, resulting in an effective tax rate of 12.36%. Excise tax is usually levied ad valorem and is based on a certain percentage of the transaction price or the maximum retail price (for certain specific goods).
Property tax is a local tax levied on property, and the taxpayer is the owner of the property. Property is usually real estate, including houses, offices, properties rented out, etc. This tax is mainly used to maintain infrastructure within the city. Property tax is levied ad valorem based on the value of taxable property and is calculated at the applicable tax rate.
Salaries tax is a state-level tax levied on occupation, business, labor, or employment relationships in each state. Therefore, those who participate in any of these activities are subject to salaries tax. For employees who are paid, the employer should deduct the salaries paid to the employee at the specified rate and pay the tax to the Government of India treasury. In addition, employers, business people, professionals, etc., are also required to pay salaries tax at the prescribed rate for their respective status. Salaries tax is levied differently in different states.
In addition, there are customs duties, R&D taxes, virtual digital encryption taxes, social security premiums, etc.
PS: Due to space limitations, other taxes will not be introduced, and they have little to do with overseas investment. This article is only a brief review to help Chinese residents invest overseas to understand local taxes, and for specific businesses, please contact us for reference: "Tax Guide for Chinese Residents Investing in India"
Written by: Caizi
Typesetting: Chen Wen
头条抖音公众号：大公Tax
The content of this article is for general information purposes only and does not constitute the provision of any professional advice or services. Nothing provided herein should be construed as formal tax, accounting, or legal advice.
©Copyright 2023 Dagong (Shenzhen) Tax Agent Office, may not be reproduced. The name and logo of Dagong Tax are trademarks or registered trademarks of Dagong Tax Accountant Firm.