INDIA Law and Practice Contributed by: Raj Ramachandran, Kartik Jain, Mannat Nirola and Anmol Mahajan, JSA Advocates & Solicitors
ing INR5 crore (approx. USD530,000). In all cases, a health and education cess of 4% is levied on the aggregate of tax and surcharge. Employers are required to withhold income tax from employees’ salaries and remit it to the government as an advance payment of the employees’ tax liability. Indirect Tax Services rendered by an employee to his or her employer in the course of or in relation to his or her employment are explicitly excluded from the defini - tion of supply under the Central Goods and Services Tax Act, 2017. Accordingly, salaries, wages and other remuneration paid by an employer to its employees do not attract Goods and Services Tax (GST). Further, gifts not exceeding INR50,000 (approx. USD530) in value per employee per financial year are also exempt from GST. Secondment arrangements are generally subject to closer scrutiny by GST authorities, as they may be characterised as services rendered by a foreign affili - ate to the entity in India. Accordingly, the GST implica - tions for such arrangements depend on the specific structuring and facts of each case. Separately, services provided by directors to a com - pany fall within the ambit of GST and are liable to tax Companies are subject to a multi-tiered tax system primarily governed by the Income Tax Act, 2025, the GST laws and state-specific levies. 1. Corporate income tax Domestic companies may opt for a concessional cor - porate tax regime at the rate of approximately 25.17%, subject to the specified exemptions and deductions. Alternatively, companies claiming the available deduc - tions and incentives are generally taxed at 25% (where turnover for FY 2024–25 does not exceed INR400 crore (approx. USD42 million)) or 30% (where turno - ver exceeds INR400 crore), plus applicable surcharge and cess. under the reverse charge mechanism. 5.2 Taxes Applicable to Businesses Direct Tax
Foreign companies are taxed at the rate of 35% cou - pled with an additional surcharge ranging from 2% to 5%. 2. Withholding tax Tax Deducted at Source (TDS) is a mechanism where the payer deducts tax before making certain payments, ensuring tax collection at the source of income. The rate depends upon the nature of income, and it differs for residents and non-residents. The table below illus - trates the TDS rates applicable to non-residents for common income types, which are relevant for foreign companies and individuals:
1. Dividend: 20% + surcharge + cess 2. Interest: 20% + surcharge + cess 3. Rent: 30% + surcharge + cess
The TDS rate with a double tax avoidance agreement on all the above categories of income is between 10% and 15%, depending on the country of residence. Indirect Tax Businesses in India are subject to a multi-layered tax regime comprising direct taxes (income tax/corporate tax) as well as indirect taxes (GST, customs duty and excise duty), the applicability of each being contingent upon the nature and scope of the business under - taken. 1. GST GST is a destination-based consumption tax levied on the supply of goods and services, subsuming most of the previously existing central and state indirect taxes. GST rates vary based on classification of the goods or services, with rates ranging through 0%, 5%, 12%, 18% and 40%. The liability to discharge/pay taxes to the government devolves upon the supplier. Exports of goods and services are treated as zero- rated supplies, enabling exporters to claim refunds of input tax credits or taxes paid. Since GST is a value- added tax, businesses are generally entitled to claim input tax credit for eligible taxes paid on procurements and utilise the same against output tax liabilities. Petroleum crude, high-speed diesel, motor spirit (pet - rol), natural gas, aviation turbine fuel and alcoholic
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