INDIA Trends and Developments Contributed by: Arvind Sharma, Ajoy Roy, Sanjiv Malhotra, Shahana Chatterji and J.V. Abhay, Shardul Amarchand Mangaldas & Co.
Indirect taxes in India include: • a goods and services tax (GST); and • customs duties on imports, with concessions for imports from countries with which India has preferential/free trade agreements. Tax obligations relating to employment Employer responsibilities include: • tax to be deducted at source on employee salaries that must be deposited with the gov - ernment of India, regardless of the tax regime chosen by the employee; and • the employer undertaking to make Employ - ees’ Provident Fund contributions at 12% and Employees’ State Insurance Corporation deductions at 3.25% (subject to wage limits). Employee taxation involves progressive slab rates under two regimes: • The traditional regime allows deductions and exemptions – such as travel allowances, house rent allowances and home loan interest – whereas the new regime offers lower slab rates but lacks most of the exemptions. • For FY 2025–26, individuals may choose between the two based on their income pro - file and preference for deductions. Tax benefits India offers a range of tax benefits and incentives to both businesses and individuals including: • a 100% tax holiday for three years for start- ups within the first ten years of their existence (till 1 April 2030); • long-term capital gains being taxed at 12.5% (plus surcharge/cess); • Special Economic Zone (SEZ) units with tax exemptions for up to 15 years (if operational before April 2021);
• International Financial Services Centre (IFSC) units that offer a 100% exemption for 10 out of 15 years; • non-residents being exempt from capital gains tax on transfer of specified assets such as bonds or global depository receipts, rupee-denominated bonds of an Indian company, derivatives, undertaken in foreign currency on a recognised stock exchange located in any IFSC; • foreign banks with an offshore banking unit in an SEZ receiving 100% tax exemption on profits for the initial five years and 50% for the next five years on specified incomes; • a simplified presumptive tax regime for non- residents rendering services or technology in India for setting up electronics manufacturing facilities or manufacturing electronic prod - ucts; and • the abolition of angel tax and equalisation levies. Transfer pricing regulations India enforces transfer pricing for cross-border and certain domestic transactions, requiring documentation for transactions over INR10 mil - lion. Dispute resolution options include Advance Pricing Agreements and Safe Harbour Rules. Block assessments for three years are now allowed to reduce compliance issues. Other tax issues Thin capitalisation rules mandate that interest deductions are capped at 30% of EBITDA. A general anti-avoidance rule (GAAR) allows authorities to disregard arrangements lacking commercial substance if tax benefits exceed INR30 million. Special anti-avoidance rules (SAAR) target specific avoidance schemes.
322 CHAMBERS.COM
Powered by FlippingBook