Taxation in India

The tax rate in India

A foreign company's tax rate is different from that of a domestic companies, and the relevant surcharge (ranging from 2% to 10%) and cess (at 3%), which are enhanced further based on the quantity of revenue, also differ. If a company's tax due is less than 18.5% of its adjusted book earnings (before surcharge and education cess), it must pay minimal alternative tax (MAT) (subject to prescribed adjustments). The adjusted book profits are subject to MAT in such circumstances.

The headline corporation tax rate will drop from its current level of 30% to 25% over the course of four years, as promised by the incoming administration. Furthermore, it has been made clear that foreign businesses, FIIs, and FPIs would not be covered by the MAT requirements. But the MAT rules can be applied if the foreign business has a location or Permanent Establishment in India.

Know more about section 12a of income tax act.

Taxation in India based on source rules

The tax code further stipulates that certain incomes, such as royalties and fees for technical services, will be taxed on a source rule basis when received by non-residents. Subject to any favourable treatment under the treaty, the tax rate on such income has recently decreased from 25% to 10% (plus any relevant surcharge and cess).

Payments for computer software and satellite-based transmissions are included in the scope of royalties under domestic tax legislation. But even in the absence of a treaty modification, the taxpayer might still depend on the more stringent and advantageous definition of royalty provided for under the specific tax treaty.

Transfer pricing in India

Transfer Pricing (TP) requirements must be followed in all international transactions involving related businesses. Additionally, certain domestic transactions now fall under TP restrictions. India has a sizable number of instances concerning TP disputes, and the Indian tax authorities have taken tough positions and conducted audits in response. The TP concerns are currently being handled thanks to the establishment of the APA regime, progress in the negotiations of the Mutual Agreement Procedures, and explanations on numerous subjects by the new government.

India DDT (Dividend distribution tax)

At the moment, Indian corporations that distribute dividends are liable to DDT at an effective rate of 20.36% on the net distribution made to the foreign parent. The Indian corporation must pay the tax. However, when received by the receiver, dividends are free from Indian tax.

Get to know more about 80g exemption list.