Tax Law

Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality. The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State. The Central Board of Direct Taxes (CBDT), Department of Revenue in the Ministry of Finance, Government of India provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of the direct tax laws through Income-tax Department.

Corporate Income Tax – The major tax enactment in India is the Income-tax Act of 1961 passed by the Parliament, which imposes a tax on income of individuals and corporates. This Act imposes a tax on income under the following five heads:

• Income from salaries,
• Income from business and profession,
• Income from house and property,
• Income in the form of Capital gains, and
• Income from other sources

Company	Applicability	Tax Rate	Surcharge (on basis	Cess (on basis tax plus surcharge)	Effective Tax Rate
Domestic Company	Total income < 10 million	30%	-	3%	30.90%
	Total income < 10 million but > 100 million	30%	5%	3%	32.445%
	Total income > 100 million	30%	10%	3%	33.99%
Foreign Company	Total income < 10 million	40%	-	3%	41.2%
	Total income < 10 million but > 100 million	40%	2%	3%	42.024%
	Total income > 100 million	40%	5%	3%	43.26%

Minimum Alternate Tax (MAT) is levied at 18.5% of the adjusted profits of the Company where the tax payable is less than 18.5% of the book profit. The Indian tax year extends from 1 April of a year to 31 March of the subsequent year. A corporation tax year also ends on the same date. All corporations (except those who are required to submit transfer pricing certificate in Form 3CEB in respect of international transactions) are required to file a return of income (ROI) by 30 September, even in the event of loss. However, corporations who are required to submit transfer pricing certificate in Form 3CEB in respect of international transactions are required to file an ROI by 30 November. Non-resident corporations must file an ROI in India if they earn income in India, or they have a physical presence/economic nexus in India. However, there is a move to replace the aforesaid Act with a new Act, viz. the Direct Taxes Code.

The main indirect taxes prevalent in India are:

• Excise Duty – this is a country-wide tax on the production of goods and is levied as per the provisions of Central Excise Act, 1944. Tariff is applicable as per the rates prescribed in the Central Excise Tariff Act, 1985. Most products are taxed at 12% plus cess. This tax is payable when goods are dispatched from the factory, though the liability arises on manufacture
• Service Tax - this is a country-wide tax on the provision of services. Presently 12% plus cess, this tax is payable when services are billed for and the amount received by the service provider. Except the negative list which runs upto 17 services all other services are taxable
• Customs Duty - this is a country-wide tax on import of goods into India. Different rates are prescribed as per a tariff. Tariff is applicable as per the rates prescribed in the Custom Tariff Act, 1985 9which is aligned with the Harmonized System of Nomenclature (HNS) followed internationally). Most products are taxed at 10% plus cess
• VAT/CST – this is a tax imposed by each state in India on sale of goods. Inter-state sale attracts Central Sales Tax (CST) and intra-state sales attracts State Sales Tax (or State VAT)
• Octroi Duty– this is a local tax imposed by city municipalities on goods entering a city. If these goods subsequently leave the city in the same state or in a processed state, the octroi paid earlier is refunded
• Stamp Duty – is a state tax and is payable on execution of documents. Examples of documents requiring stamp duty payment are Property Sale Deed, Lease Deed, Share Certificate, Power of Attorney etc. Documents not properly stamped are not admissible as evidence in a court of law in India.