India: Entorn econòmic
A GST compensation cess applies on some demerit and luxury items, including automobiles and tobacco products.
Stamp duties and real estate taxes are imposed by municipal authorities and vary across states. A separate securities transaction tax (varying between 0.001% and 0.125%) continues to apply. Some demerit and luxury items are subject to a compensation cess (rates vary).
An equalization levy of 6% on the amount of consideration in excess of INR 100,000 for specified services received by a non-resident without a permanent establishment in India must be withheld by a resident payer or a non-resident payer with a PE in India.
In general, expenses are deductible if they are incurred wholly and exclusively for business or professional purposes, not in the nature of a personal expense, and if they are not capital in nature.
Allowable deductions include wages and salaries, bonuses and commissions, rent, repairs, insurance, royalty payments, certain taxes (sales, municipal, road, property and expenditure taxes, customs duties), interest, lease payments, depreciation, expenditure for materials and scientific research, etc. One-fifth of start-up expenditure is allowed as a yearly deduction, over a period of five years. Bad debts can be allowed as a tax-deductible write-off if they have been written off as irrecoverable.
Any charitable contribution made by a company to any charity is allowed as a tax-deductible expense (conditions apply), in a range from 50% to 100% of the charitable contribution, depending upon the nature of the charity. No deduction shall be allowed in respect of contributions made in cash exceeding INR 2,000. If a business has opted for the reduced rate of tax of 22% under the new tax regime, it is not allowed to claim deductions of charitable contributions (from FY 2020-21 onwards).
Losses can be carried forward and set off against income from the subsequent year (business and capital losses for 8 years), while carrybacks are not allowed.
Various incentives are provided for companies carrying out specific business activities in India, for example:
Indian companies distributing or declaring dividends are liable to pay DDT (dividend distribution tax) at 15%. This rate is required to be grossed up; consequently, the effective rate of DDT is 20.36%. However, the Finance Act 2020 has abolished the DDT with effect from 1 April 2020, hence dividends distributed after that date will be taxable in the hands of shareholders (20% for dividends paid to non-residents; at the normal tax rates applicable to the shareholders for dividends paid to residents).
A securities transaction tax is applicable to transactions involving the purchase/sale of equity shares, derivatives, units of equity-oriented funds through a recognised stock exchange, or the purchase/sale of a unit of an equity-oriented fund to any mutual fund. The rates vary from 0.001% to 0.125%, depending upon the type of securities.
A property tax is levied by the governing authority of the jurisdiction in which the property is located, with rates varying from city to city. Stamp duties apply to all legal property transactions, with different rates being set by each state.
Social contributions paid by the employer amount to 12% of the employee's salary (8.33% are allocated to the Employees’ Pension Fund, capped at INR 15,000/month for Indian employees). A reduced tax rate can apply to individual and Hindu Undivided Family (HUF) taxpayers.
From 1 April 2020, an equalisation levy of 2% applies on the consideration from e-commerce supply and services made or provided by an e-commerce operator without a PE in India, and whose sales, turnover, or gross receipts from the e-commerce supply and services are at least INR 20 million during the tax year. The sale of goods or provision of services by an e-commerce operator to an e-commerce participant is subject to a 1% withholding tax.
An equalisation levy of 6% on the amount of consideration in excess of INR 100,000 applies with regard to specified services (e.g. online advertising, the provision of digital advertising space, and other related facilities or services) received by a nonresident without a permanent establishment in India. The levy must be withheld by a resident payer or a non-resident payer with a permanent establishment in the country.
The Finance Act 2022 included measures to incorporate Virtual Digital Assets (VDAs) such as cryptocurrencies, NFTs, and other similar assets into the tax system. Under these provisions, profits earned from the sale of VDAs will be subject to a 30% tax rate, with no allowance for deductions other than the acquisition cost. Additionally, any losses incurred from the sale of VDAs cannot be offset against other income in the current or future years.
When Indian companies repurchase shares from their shareholders, they must pay an extra tax calculated as 20% of the difference between the consideration paid for the buyback and the original issue price of the shares, plus a 12% surcharge and a 4% health and education cess.
| India | South Asia | United States | Germany | |
| Number of Payments of Taxes per Year | 10.9 | 26.7 | 10.6 | 9.0 |
| Time Taken For Administrative Formalities (Hours) | 251.9 | 273.5 | 175.0 | 218.0 |
| Total Share of Taxes (% of Profit) | 49.7 | 43.9 | 36.6 | 48.8 |
Source: Doing Business, Latest available data.
| New Personal Tax Regime (NPTR) - optional regime effective from 1 April 2020 The taxpayer renounces to certain deductions or exemptions (consult the "Deduction" section) |
If an individual is a resident and their total income does not surpass INR 500,000, they qualify for a tax rebate of the lesser amount between their income tax or INR 12,500. However, if they choose to use the new tax regime, the tax rebate is the lesser amount between their income tax or INR 25,000, as long as their total income remains under INR 500,000. |
| Less than INR 300,000 | 0% |
| INR 300,001 – 600,000 | 5% |
| INR 600,001 – 900,000 | 10% |
| INR 900,001 – 1,200,000 | 15% |
| INR 1,200,001 – 1,500,000 | 25% |
| Above INR 1,500,000 | 30% |
| Surcharge | In addition to the income-tax, a surcharge (SC) of 10% is to be levied where the total income of individuals is between INR 5 to 10 million; 15% where the total income of individuals is between INR 10 and 20 million; 25% between INR 20 and 50 million; 25% above 50 million (37% (37 in case the taxpayer opts for the old tax regime). On income arising on account of long-term capital gains, the rate of surcharge would be capped at 15%. |
| Health and education cess | 4% of the income tax and surcharge |
| Tax rebate | Resident individuals are eligible for a tax rebate of the lower of the income-tax or INR 12,500 where the total income does not exceed INR 500,000 |
| Old Personal Tax Regime (NPTR) | If an individual is a resident and their total income does not surpass INR 500,000, they qualify for a tax rebate of the lesser amount between their income tax or INR 12,500. However, if they choose to use the new tax regime, the tax rebate is the lesser amount between their income tax or INR 25,000, as long as their total income remains under INR 500,000. |
| Less than INR 250,000 | 0% |
| INR 250,000 – 500,000 | 5% |
| INR 500,000 - 1,000,000 | 20% |
| Above INR 1,000,000 | 30% |
| Alternative minimum tax (AMT) Applicable to business or profession income |
18.5% (plus surcharge and health and education cess) on the adjusted total income. |
On donation of a certain amount to specifically approved funds, charitable institutions, etc., an individual can claim a deduction of 50% to 100% of the amount donated, subject to certain legal restrictions. Deduction for funds or charitable institutions in excess of INR 2,000 can to be allowed only when the donation is not made in cash.
Expenses relating to business income are deductible.
Following the introduction of the new optional personal tax regime, individuals who opt for such regime renounce to certain deductions or exemptions, including house rent allowance; leave travel allowance; allowance under section 10(14) of the Income-tax Act (with some exceptions); standard deduction of INR 50,000 and deduction for professional tax; exemption of free food and beverages through vouchers provided by the employer; deduction of interest payment on housing loans for self-occupied property and restrictions on set-off of loss from let out property; relocation allowance; helper allowance; children education allowance; all Chapter VIA deductions of the Income-tax Act available for expenditure by way of employee’s contribution to provident fund, insurance premium, donations, medical premium, etc., except employer’s contribution to a notified pension scheme, such as National Pension Scheme (NPS). For further information, click here.
A foreign worker who is a citizen of a country with which India has signed a social security agreement is not required to contribute to the social security system if he/she is contributing to his/her home country’s social security, either as a citizen or resident, and enjoys the status of "detached worker" for the period, and according to the terms, specified in the relevant agreement.
Dividend income to a non-resident received on or after 1 April 2020 would be subject to tax in the hands of the shareholder at the rate of 20% unless a lower rate applies due to a tax treaty.
Interest: 10% when paid to a resident corporation/individual (7.5% between 14 May 2020 and 31 March 2021)/20% when paid to a non-resident corporation/individual. If the interest income derived by a non-resident does not fulfil the conditions prescribed by the law for concessional WHT rates, a rate of 30% (for individuals and entities other than a foreign company) or 40% (for a foreign company), plus the applicable surcharge and chess, will apply.
Royalties: 2% where the royalty is paid to a resident corporation/individual and is in the nature of consideration for the sale, distribution, or exhibition of cinematographic films; otherwise, the rate is 10% (1.5% and 7.5%, respectively, between 14 May 2020 and 31 March 2021)/ 10% when paid to a non-resident corporation/individual, plus surcharge and chess.
The rates may be reduced under a tax treaty.
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Actualitzacions: September 2023
