APRIL 2021 LEGAL SYSTEMS IN T H E W O R L D India CONTENTS INTRODUCTION INITIAL DATA TAX SYSTEM BILATERAL RELATIONS WITH SPAIN BANKING AND FINANCE SYSTEM INVESTMENT IN INDIA If you have an interest in reading this report in another language, WITH please ask and we will be happy to translate it. 1 I n i t i a l D a t a Size Area: 3.287 million km² Population 1.366 billion (2019) Density 419.80 people per square kilometer (2020) Capital New Delhi Main Cities New Delhi, Bombay (Mumbai), Calcutta (Kolkata), Madras (Chennai) GDP Fastest growing economy @8.2% in 2017-18. Due to pandemic, current growth rate @ 0.4% (2020- 21 est.) GDP per Capita 1876.53 USD Active Population 1,355.0 million people (March 2021) Unemployment Rate 6.5% (January 2021) Currency Indian rupee (sign: ₹; currency code: INR) State debt as percentage of GDP Expected to reach 85.00 percent by the end of 2021 Yearly Inflation 7.66% (2019) Exchange rate (USD/INR) 0,013 USD/1 INR Background and Introduction to India India, also known as Bharat, is one of the oldest civilizations in the world with a kaleidoscopic variety and rich cultural heritage. A panoramic overview of the ‘history of India’ would highlight the reasons, why and how, an ancient culture transformed into a modern growing economy. India lies entirely in the northern hemisphere, the mainland extends between latitudes 8° 4' and 37° 6' north, longitudes 68° 7' and 97° 25' east and measures about 3,214 km from north to south between the extreme latitudes and about 2,933 km from east to west between the extreme longitudes. Post-independence (in 1947) has seen evolution of India from a sleepy rural economy of snake charmers, into a modern economy where India is leading in space program, pharmaceuticals, information technology, telecommunication, films, etc. Being the youngest nation in the world, supported by a strong middle class and hardworking character of the nation has contributed to its growth and development. This transformation of India has not only impacted the rate of growth, but also made the destination for foreign investments of the 21st century. India has the largest youth population in the world. The U.S. Census Bureau estimates that it will become the world’s largest by 2025 with more than 50% of its population below the age of 25 years and more than 65% below the age of 35 years. Besides Hindi being our 2 mother tongue, English is lingua franca which is not only binding force but also makes attractive destination for foreign people. Also, India is a melting pot of different cultures and religions where language and culture changes after every 200 miles. India is the largest democracy in the world and citizens here are highly enthusiastic to be a part of democratic governance and system. It is “Sovereign, Socialist, Secular, Democratic and Republic” with a parliamentary form of federal government. India is not only a vibrant democracy which is matured safeguarded by a strong and independent judiciary. The Constitution of India guarantees ‘Fundamental Rights’, which include and is not limited to, Right to Equality, Freedom of Speech & Expression, Right to Life & Liberty, etc. Most of these fundamental rights are available to all persons, including Indian subsidiaries of foreign companies. The independence of the judicial system in India is the benchmark and highlight of India’s democracy. The judicial system is not only an independent institution, but also exercises a continuing check & balance upon the powers of legislature and executive. This harmonious balance of powers between legislature, executive and judiciary is the backbone of Country and one of the hallmarks of India as a democracy. The Indian socio-political system is rooted and has evolved through The Constitution of India, and has matured through a defined system of the checks and balances. Unlike many Asian countries, India can boast of itself as a matured democracy, wherein the political masters are elected through free and fair elections. The democratic institutions have evolved over decades and forms checks and balances. Free press is a highlight of the Indian democracy. And unlike most of the neighbours, despite of being a nuclear Country (with one of largest armies), the army is under political control. Joint Statement by India & Spain (31st May 2017) With this background, the Prime Minister of India, on invitation of President of Spain paid a State Visit to Spain (between 30th - 31st May, 2017). The two Countries exchanged views on various aspects of bilateral relations and they expressed their commitment to further strengthen India – Spain ties. It was acknowledged that India and Spain share a strong commitment to principles and values of democracy, freedom, rule of law, respect of human rights and territorial integrity of States. CEOs of Spanish Business and Industry expressed strong support for the economic reforms in India and have their keen interest to participate actively in programmes including Make in India, Smart Cities project, Digital India, Swachh Bharat, Start-up India, Skill India and other initiatives. President of Spain (Rajoy) urged Spanish Companies to participate actively in India in order to achieve a high economic growth which in turn will also contribute in the growth of Spain. In the meeting, emphasis was also placed on the importance of the India-EU BTIA (Bilateral Trade and Investment Agreement), which may facilitate further Spanish and European Investments in India. President Rajoy welcomed the positive contributions being made by Indian Companies to the Spanish Economy in the fields such as IT (Information Technology), pharmaceuticals and automobiles. PM Modi also appreciated the reputation of Spanish Companies in renewable energy and called for their further participation in support of India’s renewable energy programme to achieve 175 GW of renewable energy by 2022. The 2 (two) leaders also welcomed many ongoing innovations and recently concluded MoUs and agreements between the 2 (two) countries. 3 T a x R e g i m e The tax structure in India is divided into Direct and Indirect taxes. The direct taxes are levied on taxable income earned by individuals and corporate entities. They are categorized into 2 (two) categories: Personal Income Tax The income-tax paid by an individual taxpayer. They are taxed on the basis of tax slabs, which are levied on staggered basis on different tax rates.1 S. No. Income Tax Slabs Rate of Tax Less than Rs. 2.5 Lakhs Nil 1. Rs. 2.5 Lakhs- Rs. 5 Lakhs 5% 2. Rs. 5 Lakhs- Rs. 7.5 Lakhs 10% 3. Rs. 7.5 Lakhs- Rs. 10 Lakhs 15% 4. Rs. 10 Lakhs- Rs. 12.5 Lakhs 20% 5. Rs. 12.5 Lakhs- Rs. 15 Lakhs 25% 6. Above Rs. 15 Lakhs 30% 7. Corporate Tax The Income-tax paid by domestic and foreign companies on their income is Corporate Income Tax (CIT). Tax is charged at different rates for different entities. S. No. Type of Company Corporate Tax Corporations not seeking any exemptions 22% 1. Corporations seeking exemptions 30% 2. New manufacturing companies 15% 3. Foreign Company2 40% 4. 1https://www.incometaxindia.gov.in/_layouts/15/dit/mobile/viewer.aspx?path=https://www.incometaxindia.gov.in/charts++tables/tax+rates. htm&k&IsDlg=0 2https://www.incometaxindia.gov.in/pages/i-am/foreign-company.aspx 4 Indirect taxes Indirect taxes are levied on the sale and provision of goods and services respectively. The system is such that taxes are levied by the central government and by the state governments. GST (Goods & Services Tax) GST is the latest tax reform in India which have consolidated various indirect taxes such as excise duty, Value Added Tax (VAT) etc. and made a One nation, One Tax regime. More than 1300 goods and 400 services has been divided into 4 (four) slabs of different rates, i.e., 5%,12%, 18% and 28%. Tax is collected in 3 (three) different forms of CGST (Central Goods and Services Tax), IGST (Integrated Goods and Services Tax) which are collected by central government and SGST (State Goods and Services Tax) which is collected by state government. Taxation on Foreign Entities3: Company formed in India (Wholly-owned LLP (Limited Liability subsidiary/ Joint S. No. Project/Branch office Partnership) Venture) Taxable @40% plus Taxable @30% plus Taxable @30% plus 1. applicable surcharge and applicable surcharge and applicable surcharge cess in respect of Indian cess, of its global income. and cess, on its global Profits. income. Required to obtain PAN Required to obtain PAN Required to obtain PAN 2. and TAN, file an annual and TAN and file an annual and TAN and file an return of income and an return of income. annual return of income. AAC (Annual Activity Certificate). Not subject to any Repatriation of capital Profit repatriation by 3. additional tax at the time contribution is permissible way of a dividend is of closure. and not subject to any subject to DDT additional taxes. (Dividend Distribution Tax) in the hands of company @20.36% of dividend declared. 3https://www.investindia.gov.in/taxation 5 Key Tax Incentives for Investments in India: S. No. Basis Applicability Incentives Export Promotion SEZ units operational Deduction of 100% of profits 1. before 1st April 2020 and gains derived from export business for first 5 years of commencement, 50% of profits and gains derived from export business for next 5 years, 50% of ploughed-back profits and gains from export business for next 5 years. Research & Companies in respect of Companies in respect of any 2. Development any expenditure on R&D expenditure on R&D in an in an approved in-house approved in-house facility.