Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act, 1961. Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources. A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India.

Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge. Foreign corporations have a basic tax rate of 40% and a 2.5% surcharge. In addition, an education cess at the rate of 2% on the tax payable is also charged. Corporates are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn.

Domestic corporations have to pay dividend distribution tax at the rate of 12.5%, however, such dividends received are exempt in the hands of recipients.

Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.

Tax is payable on capital gains on sale of assets.

Long-term Capital Gains Tax is charged if

Capital assets are held for more than three years and

In case of shares, securities listed on a recognized stock exchange in India, units of specified mutual funds, the period for holding is one year.

Long-term capital gains are taxed at a basic rate of 20%. However, long-term capital gain from sale of equity shares or units of mutual funds are exempt from tax.

Short-term capital gains are taxed at the normal corporate income tax rates. Short-term capital gains arising on the transfer of equity shares or units of mutual funds are taxed at a rate of 10%.

Long-term and short-term capital losses are allowed to be carried forward for eight consecutive years. Long-term capital losses may be offset against taxable long-term capital gains and short-term capital losses may be offset against both long term and short-term taxable capital gains.

Personal income tax is levied by Central Government and is administered by Central Board of Direct Taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act, .

The rates for personal income tax are as follows:-

Current rates for withholding tax for payment to non-residents are:-

Dividends paid by domestic companies: Nil

Royalties :10%

Technical Services : 10%

Any other services

Individuals: 30% of the income

Companies: 40% of the net income

The above rates are general and are applicable in respect of countries with which India does not have a Double Taxation Avoidance Agreement (DTAA).

Government of India provides tax incentives for:-

These tax incentives are, subject to specified conditions, available for new investment in

Certain telecom services,

Undertakings developing or operating industrial parks or special economic zones,

Production or refining of mineral oil,

Developing housing projects,

Undertakings in certain hill states,

Handling of food grains,

Food processing,

Rural hospitals etc.

India has entered into DTAA with 65 countries including the US. In case of countries with which India has Double tax Avoidance Agreement, the tax rates are determined by such agreements. Domestic corporations are granted credit on foreign tax paid by them, while calculating tax liability in India.

In the case of the US, dividends are taxed at 20%, interest income at 15% and royalties at 15%.