How are companies taxed in India

Tax Law in India

Corporation tax

The tax rate for domestic small and medium-sized enterprises is 25 percent up to a turnover of 4 billion Indian rupees (iR.) (Approx. 46.7 million euros), beyond that 30 percent (standard tax rate). If the profit is over 10 million iR. up to 100 million iR. a surcharge of 7 percent is to be paid on the tax liability, with a profit of over 100 million iR. a surcharge of 12 percent.

In addition, since the tax year 2019/2020 there has always been the so-called "Health and Education Cess " (Health and education tax, Cess) in the amount of 4 percent of the tax including surcharges. The highest effective final tax rate for Indian companies is 34.944 percent.

Since April 1, 2020, a tax rate of 22 percent has applied to local companies under certain conditions (Taxation Laws (Amendment) Ordinance 2019). In addition, there are certain surcharges, so that the effective tax rate is then 25.17 percent. For new production companies that are founded on October 1, 2019 and start production before or on March 31, 2023, the corporate tax rate will be reduced from 25 percent to 15 percent if they meet the specified requirements. In both cases, the procedures are optional. However, if the companies have decided to apply the lower tax rates in accordance with the aforementioned provisions, they cannot reverse this decision.

Foreign-invested companies that are incorporated in India are taxed on an equal footing with purely Indian companies. There are a variety of depreciation options.

For foreign companies that carry out income generating activities in India without being resident there (non-resident companies), a tax rate of 40 percent applies. The surcharge on the tax liability is 2 percent for a profit of more than 10 million iR to 100 million iR, and 5 percent beyond that. Then there is theCess of 4 percent.

Income tax

The income tax rates from the 2020/2021 tax year are:

Income (in iR.) From

to income (in iR.)

tax rate

250.000

no tax liability

250.001

500.000

5 %

500.001

1.000.000

20 %

more than 1,000,000

30 %

more than 10 million

up to 20 million

Surcharge of 15%

more than 20 million

up to 50 million

Surcharge of 25%

more than 50 million

Surcharge of 37%

Source: Research by GTAI

Then there is theCessin the amount of 4 percent.

The income of senior citizens residing in India over the age of 60 is up to iR 300,000, from 80 years up to iR 500,000 tax exempt.

For residents of India, worldwide income is taxed; for non-residents, only income from Indian sources is taxed.

Goods and Services Tax

As of July 1, 2017, a nationwide uniform sales tax (Goods and Services Tax, GST). This marked the largest tax reform since independence.

With the introduction of the GST Value added tax, Service Tax and the other product and service-oriented taxes have been merged into a nationwide uniform GST.

Different tax rates (0, 5, 12, 18 or 28 percent) are possible. The tax rate for most services is 18 percent. A tariff number (similar to the HS code) decides on the classification.

The GST is an extensive indirect tax on the production, distribution and consumption of goods and services. As a consumption tax, it is due at every level of trade that creates value. It entitles you to deduct input tax and therefore it is necessary to receive a correct invoice. In addition, the declared input tax must actually have been paid by the supplier. Companies are entitled to withholding tax so that only the end consumer is charged. The system is thus comparable to that of the German sales tax.

The taxes are paid online and the data compared online. The taxpayer must be registered in a database in order to record the tax payment. Companies with an annual turnover of less than 2 million iR. do not generally require registration.

Due to the federal structure of India, the GST is further divided into central government taxes (Central GST / CGST), the states (State GST / SGST) and an overarching tax (Integrated GST / IGST). These tax rates are uniform and do not affect the total amount. The tax is target-dependent and thus the place of delivery of goods or the recipient of the service is decisive. For example, if a service is provided within a state, the CGST and SGST are each to be applied at 50 percent. In the case of a service between two states, the IGST is relevant. In the case of goods imports, customs must be paid in addition.

For German companies that do not have a permanent establishment in India, the introduction of the GST did not result in any changes. The GST is not to be shown on invoices for exports to India. The IGST is to be applied to the import. The GST levied on services is to be calculated by the Indian customer on the basis of the net invoice and paid by him directly to the tax authorities (reverse charge Procedure).

Note: Further information on Indian tax law can be found in the GTAI legal report "Double taxation agreements and withholding tax in India".

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