Edition No. 1 January 2019 Doing Business Guide This guide has been produced by the Morison KSi Indian member firms About This for the benefit of their clients and associate offices worldwide who are Guide interested in doing business in India. Its main purpose is to provide a broad overview of the various issues that should be considered by organisations when considering setting up business in India.

The information provided cannot be exhaustive and – as underlying legislation and regulations are subject to frequent changes – we recommend anyone considering doing business in India or looking to India as an opportunity for expansion should seek professional advice before making any business or investment decision.

While every effort has been made to ensure the accuracy of the information contained in this guide, no responsibility is accepted for its accuracy or completeness.

The information in this guide is up to date as at the edition date.

For more information, please contact:

SCV & Co. LLP Bhuta Shah & Co. LLP www.scvindia.com www.bhutashah.com

Sachin Vasudeva Sneha Padhiar [email protected] [email protected] T: +91 11 26499111 T: +91 22 43439172

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Disclaimer: Morison KSi is a global association of independent professional firms. Professional services are provided by individual member firms. Morison KSi does not provide professional services in its own right. No member firm has liability for the acts or omissions of any other member firm arising from its membership of Morison KSi. www.morisonksi.com Edition No. 1 January 2019 Contents

Introduction 1 Business Structures 6 Labour and Personnel 9 International Mobility 11 Taxation System 13 Banking and Finance 19 Reporting Requirements 21 Grants and Incentives 22 Agencies Providing Assistance 23 Why India? India’s prime minister, Mr. Narendra Introduction Modi, has introduced a series of India has emerged as the fastest- policy measures that are expected growing major economy in the to increase the country’s economic world, according to the Central growth fivefold by 2040. Statistics Office and International Monetary Fund (IMF). The IMF As stated by TRAI in its report of forecasts that the Indian economy June 2018, India has a subscriber 5 will grow by 7.5%1 in FY 2018–19, base of around 1.2 billion people making it the fastest-growing and this telecom revolution has country among major economies. led to huge growth for the Indian India has retained its position as e-commerce industry. the third largest startup base in the world, with over 6,0002 startup History applications approved by the Department of Industrial Policy & one of the oldest civilisations Promotion (DIPP). in the world, with a kaleidoscopic variety of sights and a rich cultural India’s labour force is expected heritage. As the land of vast empires to touch 160–170 million by 2020, and historic trade routes, the Indian based on the rate of population subcontinent has been associated growth, increased labour force with cultural and commercial participation and higher education wealth for much of its long history. enrolment, among other factors, Gradually annexed by the British according to a study by ASSOCHAM Company from the early and Thought Arbitrage Research eighteenth century and colonised Institute. M&A deals in India have by the UK from the mid-nineteenth reached US$104.5 billion in 2018, century, India became a Sovereign trouncing the previous annual record Nation in 1947 after a struggle for with almost 4 months left in the year. independence that was marked by widespread use of non-violent India is expected to be the third resistance as a means of social largest consumer economy as protest. Since then, it has achieved its consumption may triple to all-round socio-economic progress. US$4 trillion by 2025, owing to As well as being self-sufficient in shifts in consumer behaviour and agricultural production, India is expenditure pattern. According now one of the top industrialised to the Boston Consulting Group countries in the world and one of report ‘The New Indian: The Many the few nations to have ventured Facets of a Changing Consumer’3, into outer space. India’s nominal year-over-year expenditure growth of 12% is more The country’s official name, ‘India’, than double the anticipated global is derived from Sindhu, the Old rate of 5% and will make India the Persian name for the river Indus. third-largest consumer market by Another name in common usage, 2025. In their report ‘The World in and officially recognised by the 1. https://www.ibef.org/economy/indian- 4 , is ‘Bharat’ – economy-overview 2050’, consulting firm PwC projects 2. https://startupindia.gov.in that India’s GDP will exceed US derived from the Sanskrit name of 3. https://www.bcg.com/en-gb/ GDP in an ancient Hindu king whose story publications/2017/marketing-sales- terms by 2040 (purchasing power is to be found in the Mahabharata. A globalization-new-indian-changing- third name, ‘Hindustan’ (Persian for consumer.aspx parity accounts for variations 4. https://www.pwc.com/gx/en/ in price levels across countries). ‘Land of the Hindus’), has been used world-2050/assets/pwc-world-in-2050- This would make India the largest since the (sixteenth slide-pack-feb-2017.pdf economy in the world after China. century). 5. https://main.trai.gov.in/sites/default/files/ PRNo91Eng20082018.pdf www.morisonksi.com India 1 Geography Constitution and law

India covers an area of over 3 million India is a union of states and is km2, extending from the snow- a sovereign, socialist, secular covered Himalayan heights to the democratic republic with tropical rainforests of the south. As a parliamentary system of the seventh largest country in the government. The world, India stands apart from the is the official head of the state, rest of Asia, marked off as it is by elected indirectly by an electoral mountains and the sea, which give college. The prime minister is, the country a distinct geographical however, the de facto head of the entity. Bounded by the Great government and exercises most Himalayas in the north, it stretches executive powers. southwards to the Tropic of Cancer, where it tapers off into the Indian India is the largest democracy Ocean between the Bay of Bengal in the world, with a federal form and the Arabian Sea. India is of government comprising three subdivided into 29 states and seven branches: union territories. • Executive. The president; vice Lying entirely in the northern president; and the Council of hemisphere, the mainland extends Ministers, headed by the prime between latitudes 8° 4´ and 37° 6´ minister north and longitudes 68° 7´ and 97° • Legislature. The bicameral 25´ east; it measures about 3,214 km parliament consists of the Upper from north to south between the House (, Council of extreme latitudes, and about 2,933 States) and the Lower House (Lok km from east to west between the Sabha, House of the People) extreme longitudes. It has a land frontier of about 15,200 km. The • Judiciary. The three-tiered system total length of the coastline of the is led by the Supreme Court in mainland, Lakshadweep Islands and New Delhi, with High Courts Andaman and Nicobar Islands is standing at the head of each 7,517 km. state judicial system, followed by District and Sessions Courts in the Population and language judicial districts into which the states are divided. The third tier The latest United Nations Estimates comprises local Courts of Civil and (September 2018) indicate that Criminal Jurisdiction. India’s population is over 1.35 billion.6 India accounts for only 2.4% Every state has a Legislative of the world’s total surface area, yet Assembly. Certain states also have supports and sustains 17.74% of the an Upper House, called the State world’s population. Legislative Council. Executive power is vested in each head of A number of languages are spoken state, a appointed by the in India; 22 are officially recognised president. The Council of Ministers, and accepted nationally, while headed by the chief minister, advises another 33 languages and around the governor in the discharge of 2,000 regional dialects have also executive functions. The Council of been identified. Hindi, written in the Ministers of a State is collectively the Devanagari script, is the official responsible to the Legislative language of the Union Government Assembly of the State. 6. http://www.worldometers.info/world- of India, while English is the population/india-population/ secondary official language. www.morisonksi.com India 2 The economy the government’s ‘’ programme. Services are the The Indian economy is one of main source of economic growth, the fastest-growing economies, accounting for more than half currently ranking 6th largest in terms of India’s output with less than of nominal GDP (almost US$2.8 one-third of its labour force. The trillion in 2018) and third largest in services sector is the biggest terms of purchasing power parity. contributor to the national GDP – The country is one of the G-20 major making a contribution of 53.66%, economies, a member of BRICS7, compared with industry (29.02%) and a developing economy that is and agriculture (17.32%) according to among the top 20 global traders, statistics for 2016–17. according to the World Trade Organization. It is one of the most Foreign direct investment attractive destinations for business and investment opportunities due In recent years, India has emerged as to a vast manpower base, diverse an attractive FDI destination. The natural resources and strong macro- cumulative amount of FDI equity economic fundamentals. inflows from April 2000 to March 2018 stood at US$377 billion; during the The economic reforms that have period April 2017 to March 2018, India been taking place since 1991 have received US$45 billion FDI equity also helped to create an investor- inflow according to DIPP reports.8 friendly environment through a liberalised policy framework Mauritius is the leading investor into spanning the whole economy. India, followed by Singapore, Japan, Between 2006 and 2010 the the UK, the USA and the Netherlands. GDP grew at an impressive rate, The inordinately high investment averaging 8–9%, with the 2010–11 from Mauritius was due to routing of growth rate pegged at 8.2%. These international funds through the growth rates slipped to below country given its significant tax 5% level in 2012–13 and 2013–14; advantages; double taxation was but since then the economy has avoided due to tax treaty provisions been steadily reviving, with an between India and Mauritius. accelerated growth rate of 7.6% in However, it may be noted that the 2015–16 and 7.1% in 2016–17. With treaty between India and Mauritius various business-friendly policy has now been renegotiated to give decisions taken by the government India the right to tax capital gains (e.g. introduction of GST; see below), under the source rule. the economy is expected to reach the 8% growth rate. FDI is subject to regulations prescribed by the ’s diverse economy India. There are two routes of entry: encompasses agriculture, petrochemicals, gems and • Automatic route: FDI into India is jewellery, engineering goods, currently possible without any RBI chemicals, plastics, coal and or government approval in most minerals, iron and steel, vegetable sectors (except certain specific oil and commodities. Real estate, industries; see below), subject 7. BRICS is the acronym for an association of infrastructure, telecoms, information to certain specific terms and five major emerging national economies: technology, tourism, banking and conditions Brazil, Russia, India, China and South financial services are key growth Africa (coined by British economist Jim • Approval route: Investment sectors. A lot of emphasis is O’Neill). proposals that are not covered by 8. https://dipp.gov.in/publications/fdi- being given to establishing India the automatic approval route statistics as a manufacturing hub, under www.morisonksi.com India 3 must be filed with the Foreign • Real estate business or Investment Promotion Board construction of farm houses. ‘Real (FIPB), which considers each estate business’ shall not include proposal on a case-by-case basis. development of townships, There is no standard form – construction of residential / applications are typically in the commercial premises, roads or form of a letter setting out an bridges and Real Estate executive summary of the Investment Trusts (REITs) applicant’s details as well as registered and regulated under the outlining the proposed investment/ Securities Exchange Board of India project, with a specific request for (SEBI) REITs Regulations, 2014 the proposed foreign investment. • Trading in transferable Wherever an industrial licence is development rights required, the application for approval should be filed with the • Manufacture of cigars, cheroots, Secretariat of Industrial Assistance. cigarillos and cigarettes, or tobacco or tobacco-substitute The Foreign Exchange Management products. Act, 1999, and the various Press Notes issued by the government’s Besides foreign investment in Department of Industrial Policy and any form, foreign technology Promotion (DIPP), together form collaboration in any form – including the basis of legislation regulating licensing for franchise, trademark, FDI into India. The RBI and/or FIPB brand name, or management share the monitoring/regulating of contract – is also completely agencies in this regard. prohibited for lottery business and gambling and betting activities. FDI is prohibited under the approval route as well as the automatic route, Foreign investment in trusts, other in the following sectors: than investment by SEBI-registered (foreign venture capital investors) in • Atomic energy domestic venture capital fund, is not permitted. • Lottery business (including government/private lottery, online lotteries etc.) Major policy reforms in the Indian economy • Gambling and betting (including casinos, etc.) Introduction of the goods and • Chit fund business services tax • Nidhi company In July 2017, India moved to GST, the • Agricultural (excluding floriculture, single biggest tax reform undertaken horticulture, apiculture, seed by the country in 70 years of development, animal husbandry, independence. The national GST pisciculture, aquaculture and unifies the country’s US$2.8 trillion cultivation of vegetables, economy and 1.35 billion people into mushrooms, etc. under controlled a common market as GST replaces conditions and services related to more than a dozen indirect taxes. agro/allied sectors) and plantation activities (other than tea, coffee, Insolvency and bankruptcy code rubber, cardamom and palm/olive oil plantations) The IBC, 2016 is the bankruptcy ; it seeks to consolidate • Activities/sectors not open to the existing framework by creating private-sector investment a single law for insolvency and www.morisonksi.com India 4 bankruptcy. The IBC has been from capital gains tax for investors in implemented to tackle bad loans of eligible startups. up to US$150 billion and revitalise the Indian banking sector. ‘Ease of Doing Business’ programme Implementation of Indian Accounting Standards ‘Ease of Doing Business’ is one of the important initiatives run by the India has chosen a path government and is crucial to the of International Financial success of many other programmes Reporting Standards (IFRS) (e.g. Make in India, Startup India, convergence rather than adoption. Digital India). According to the Hence, Indian Accounting World Bank’s ranking, India has Standards (AS) are primarily jumped 30 positions to become the based on the IFRS issued by top 100th country in terms of its the International Accounting ‘ease of doing business’ ranking in Standards Board, with some local June 2017. In the current global modifications. environment, where capital is scarce and there are countries competing ‘Make in India’ programme to attract the same capital, it is important to make India an investor- In September 2014, the Government friendly destination. The first step of India launched an ambitious towards this objective is to do campaign, ‘Make in India’, aiming away with multiple procedures, to revive the growth of India’s rules, regulations and red tape and manufacturing sector. The year bring more transparency and clarity 2015–16 witnessed 46% growth to policies. in foreign direct investment (FDI) equity inflows and the highest ever FDI inflows (US$55.5 billion).

‘Startup India’ programme

‘Startup India’ is a flagship initiative of the Government of India, intended to build a strong ecosystem for nurturing innovation and startups. This will drive sustainable economic growth and generate large-scale employment opportunities throughout the country. Through this initiative, the government aims to empower startups to grow through innovation and design. Added impetus is provided by the Finance Acts of 2016 and 2017, which offer many benefits to eligible startups incorporated on or after 1 April 2016 and before 1 April 2019. Among others, these benefits include profit- linked deduction, special provisions for carry-forward of business losses, reduced tax rate of 25% (subject to certain conditions) and exemption www.morisonksi.com India 5 Forms of business organisation that as the members may respectively Business are commonly used in India are undertake to contribute to the illustrated in Figure 1. assets of the company in the event Structures of it being wound up. Company Unlimited company A company is incorporated under the Companies Act, 2013 (or under An unlimited company is any previous enactments) and has incorporated either with or without a separate legal entity. It may be share capital, but its members’ incorporated as a private, public liability is unlimited – that is, limited, or one-person company. members or shareholders have No permission is required for a joint, several and unlimited foreign nationals to be appointed as obligation to meet any insufficiency directors of the proposed company. in the assets of the company in However, as per the provisions of the event of the company’s formal the Companies Act, 2013, every liquidation. company must appoint at least one resident director. Private limited company

Limited company Private company means a company which by its articles: In a limited company, the liability of members or subscribers is limited • restrict the right to transfer its by the extent of their investment in shares; either shares or guarantees: • except in case of a one-person company, limit the number of its • Limited by shares: The liability members to 200 of company members is limited by memorandum to the amount, – provided that where two or if any, unpaid on the (public or more persons hold one or more private) shares they each hold. shares in a company jointly, they shall, for the purposes of this • Limited by guarantee: The liability clause, be treated as a single of company members is limited by member; the memorandum to such amount

Figure 1. Typical forms of business organisation in India

Sole Limited liability Branch Liaison Project office Company Partnership proprietorship partnership

Limited liability Unlimited liability

Shares Guarantee

Public Private One-person

www.morisonksi.com India 6 Provided further that Partnership group companies and companies (A) persons who are in the in India employment of the company; A partnership is an arrangement where • Acting as a communication and entities and/or individuals agree to channel between the parent cooperate to advance their interests. company and Indian companies. (B) persons who, having been A partnership is formed between formerly in the employment of one or more businesses in which All other activities are prohibited, the company, were members partners (owners) work together of the company while in that unless otherwise specifically to achieve profits and share losses. permitted by the RBI. employment and have continued The partnership is the simplest and to be members after the least expensive co-owned business employment ceased, A liaison office is restricted structure to create and maintain. from undertaking any trading, shall not be included in the commercial, or industrial activities number of members; and A partnership is considered to have a or entering into contractual separate tax entity from its owners. • prohibit any invitation to the agreements or transactions. It is However, the liability of partners not permitted to generate income public to subscribe for any is unlimited: if the firm’s assets are securities of the company. from any activities in India. All the insufficient to meet its business expenses of the liaison office must liabilities, these can be covered A private limited company is be met from funds received through by the liquidation of the partners’ inward remittances from the foreign/ required to have a minimum of two personal property (if any). directors and two members with no parent company. minimum paid-up share capital. Limited liability partnership Branch office Public limited company Regulated by the Limited Liability Foreign companies can establish Partnership Act, 2008, an LLP is an Public company means a company branch offices in India to undertake alternative corporate business form the following activities: that that combines the limited liability of a company with the flexibility of a • Export/import of goods • is not a private company [and] partnership arrangement: although • provided that a company which it is a separate legal entity and liable • Render professional or is a subsidiary of a company, not to the full extent of its assets, the consultancy services being a private company, shall be liability of an LLP’s partners is limited • Carry out research work that deemed to be public company to their agreed contribution. involves the parent company for the purposes of this Act, even where such subsidiary company Representative office/Liaison • Promote technical or financial collaborations between Indian continues to be a private company office in its articles. companies and parent company or overseas group Foreign companies can establish A public limited company is required offices to carry on liaison activities • Represent the parent company in to have a minimum of three directors in India on behalf of the parent India and act as a buying/selling and seven members with no company. A person resident outside agent in India minimum paid-up share capital. India permitted by the Reserve Bank • Render IT services and software of India (RBI) to establish a liaison development in India One-person company office in India may undertake the following activities: • Offer technical support to the As its name suggests, a one-person products supplied by the parent/ company has only one person • Representing in India the parent group companies as a member. The company may company/group companies • Airline/shipping activities. be limited by shares, limited by • Promoting export/import from/ guarantee, or unlimited. Only a to India Where the branch is proposed to natural person who is an Indian citizen be set up in special economic zones and resident in India is eligible to • Promoting technical/financial to undertake manufacturing and incorporate a one-person company. collaborations between parent/ service activities, no RBI approval is www.morisonksi.com India 7 required. However, such branches outside India has secured from A branch office/project office can function only on a stand-alone an Indian company a contract to is deemed to be a permanent basis and in sectors where 100% FDI execute a project in India, and the establishment within the meaning is permitted. project: of the double taxation avoidance agreement (DTAA), and is therefore Unlike a liaison office, a branch office • is funded directly by inward subject to Indian income tax. is permitted to earn and generate remittance from abroad; or income in India through its activities • is funded by a bilateral or there, and may repatriate its entire multilateral international financing profits to its parent company (subject agency; or to Indian income tax; see Table 1). • has been cleared by an Project office appropriate authority; or • has been granted a term loan by A foreign company can open a a public financial institution or temporary project office for the a bank in India to the company execution of a specific project or or entity in India awarding the contract where a person resident contract.

Table 1. Comparison of business structures in India Project office / Limited liability S No. Particulars Liaison office Branch office Subsidiary company partnership 1. Legal status Represent the parent Extended arm of the Independent status Independent status company parent PO is generally set up for specific projects, whereas a BO is set up for carrying activities in the course of business 2. Approval for Requires specific Requires specific Company can be set up LLP can be set up commencement approval from RBI approval from RBI subject to FDI guidelines subject to FDI guidelines 3. Permitted activities Liaison activities Restricted scope Activities specified in LLP must be engaged in company’s MoA, subject sectors for which 100% No commercial or Only activities listed by to FDI guidelines FDI is allowed through business activities are RBI are allowed to be automatic route and no permitted undertaken FDI-linked conditions are applicable 4. Key compliance Required to file annual Required to file annual Required to file periodic Required to report the requirements under activity certificate (by activity certificate (by and annual filings details of receipt of FEMA auditors in India) with auditors in India) with relating to foreign amount of consideration RBI RBI liabilities and assets, for capital contribution receipt of capital and Disinvestment or transfer issuance/transfer of capital contributions of shares to foreign are required to be investors reported to RBI 5. Income tax rate LO is not subject to Liable to be taxed Liable to be taxed Liable to be taxed tax in India, since not on income earned at on global income at on global income at permitted to undertake 43.68% (rate applicable 34.944% on net basis 34.944% on net basis any business activity to foreign corporations) Company is liable to LLP is liable to MAT at MAT tax at 21.549% on 21.549% of its adjusted its book profits total income 6. Ease of exit Prior approval of RBI, Prior approval of RBI, Complex, depending Complex, depending ROC and income tax ROC and income tax upon strategy adopted upon strategy adopted authorities authorities Exit can be through sale Exit can be through sale of shares or liquidation of interest or dissolution

BO, branch office; FDI, foreign direct investment; FEMA, Foreign Exchange Management Act, 1999; LLP, limited liability partnership; LO, liaison office; MAT, minimum alternate tax; MoA, memorandum of association; PO, project office; RBI, ; ROC, Registrars of Companies. www.morisonksi.com India 8 Statutory requirements for • US nationals holding 10-year Labour and immigration tourist/business visas, provided their continuous stay during each Personnel The entry of foreigners into India is visit does not exceed 180 days regulated by the Acts passed by the • Foreign nationals of Indian origin Indian Parliament and related rules holding a 5-year multiple-entry that are framed periodically by the visa with an endorsement that central government. their stay should not exceed 180 days during each visit. Should they Foreign nationals wishing to take up wish to stay in India continuously employment in India should apply for more than 180 days, then for an employment visa or a work registration is required within 14 permit, issued by Indian embassies days of arrival and missions in their country. Initially • ‘Person of Indian origin’ card granted for a period of 1 year, the holders, provided their continuous visa or permit can be extended in stay does not exceed 180 days. If India to cover the period of the it does, they should approach the contract. local or regional FRO to register; this must be done within 30 days Usually, the employer offering an of the 180-day limit. employment opportunity initiates the visa application process in India. Alternatively, the applicant Major labour laws in India may apply to the Indian Embassy/ High Commission in their country There are many labour laws of residence. Both approaches enacted by both central and state require recent photographs of the governments. Some of the most applicant, together with proof of relevant are outlined below. employment (the appointment/ contract letter, terms and conditions The Industrial Disputes Act, 1947 of employment, etc.). This legislation provides the Any foreign national (including those framework for regulating the rights of Indian origin) coming to India with of employers and employees, and a visa that covers a period longer facilitates the investigation and than 180 days is required to register harmonious settlement of industrial with the local or regional Foreigners disputes. Registration Officer (FRO) within 14 days of their first arrival in India. The Employees’ Provident Funds This only needs to be done once for and Miscellaneous Provisions Act, the duration of the visa, regardless 1952 of how many times the visitor leaves and re-enters India; only if A social security legislation enacted they return on a new visa are they to provide for provident fund, required to register again. family pension and insurance to the employee (in factories and other Some categories are exempt from establishments), who is required to this requirement: pay a contribution that is matched equally by the employer. The • Those visiting India on tourist employee gets a lump sum amount visas for up to 180 days, who can on retirement. The Act covers three move freely about the country schemes: Provident Fund, Family (apart from restricted/protected Pension Fund, and Employees areas and prohibited places) Deposit Linked Insurance.

www.morisonksi.com India 9 The Payment of Wages Act, 1936 "The Factories Act This legislation regulates payment of makes provision for wages to a certain class of employed persons – mainly to ensure regular the health, safety, and timely payment of wages, as welfare, working well as preventing unauthorised deductions and arbitrary fines. hours and leave of workers in factories; The Payment of Gratuity Act, 1972 it is enforced by the A gratuity is a lump sum payment state government to an employee when they retire through their factory or finish service. However, under this Act, a gratuity is payable to inspectorates" an employee who leaves after completing at least 5 years of service with the employer. The Payment of Bonus Act, 1965

The Employees’ State Insurance Within specified categories of work, Act, 1948 this legislation provides for payment of a fixed-sum bonus after a certain An ‘insurance’ scheme that makes time period. Employees can share appropriate provision, including the prosperity of the establishment benefits, to the employee in case as reflected by the profits earned of sickness, maternity, disability or from the contributions made by employment injury. capital, management and labour.

The Factories Act, 1948

Regulates all industrial establishments employing 10 or more persons and carrying manufacturing activities with the aid of power (defined as a ‘factory’). The Act makes provision for the health, safety, welfare, working hours and leave of workers in factories; it is enforced by the state government through their factory inspectorates. The Act strengthens the provisions relating to safety and health at work; in larger factories, it provides for statutory health surveys, appointment of safety officers, and establishment of canteen, crèches, welfare committees, etc. It includes specific safety guidelines for the use and handling of hazardous substances, and for dealing with emergencies.

www.morisonksi.com India 10 India’s excellent global reputation International helps to explain the steady growth "India is a better country of its expatriate community. for expats than the USA mobility According to an HSBC survey9, India is a better country for expats than and China because of the USA and China because of its its political stability, political stability, stable economy, and entrepreneurial environment. stable economy, Needless to say, many foreign and entrepreneurial companies choose to establish their office space in India rather than environment" elsewhere in the world. • A completed visa registration Cost of living application form

Most Indian cities offer a very • Six passport-size photos of the healthy – and often luxurious – applicant lifestyle for working professionals. • A copy of the photo page from Even in highly developed the passport cosmopolitan cities like Mumbai and New Delhi, living costs (e.g. • A copy of the visa page from the education, entertainment, housing, passport food) are much lower than in • Proof of address, such as a driver’s Western countries. Indeed, in global license or utility bill, from the visa rankings of the most expensive holder’s home country cities to live, Mumbai and New Delhi • A notarised copy of a lease deed/ have dropped by 19% and 28%, agreement or a C-Form from a respectively. hotel of residence Expatriates’ first in-country • Visa registration fees. encounter with Indian bureaucracy often occurs at the Foreign Regional The employer must ordinarily Registration Office (FRRO). provide:

The following documents are • Two copies of a letter requesting typically required for FRRO approval of the applicant’s visa registration for foreigners visiting registration India on a long-term visa (more than • Two copies of a sponsorship 180 days): letter pledging responsibility for the applicant’s activity in India • Application form in quadruplicate and promising to repatriate the (Form A) applicant at company cost if any • Passport and visa in original adverse conduct comes to notice • Four passport-size photos of the • Two copies of a letter confirming applicant the visa holder’s residential address in India • Proof of residence in India • Two copies of an employment • Copy of employment contract contract that specifies their and undertakings by the monthly salary, designation, employer. tenure of employment, etc. The visa holder must ordinarily • The company’s incorporation provide: certificate. 9. https://www.expatexplorer.hsbc.com/ survey/ www.morisonksi.com MaltaIndia 11 All documents, with an exception for the incorporation certificate, must be original copies, drafted on company letterhead, signed by a senior manager, and marked with the company’s official stamp.

Once the FRRO is satisfied with these documents, a residency permit is issued to the foreign national.

Work permits in India

Non-nationals planning to work or conduct business in India must apply for an appropriate visa before entering the country. There are two relevant visas for those planning to work in India; these function similarly to a work permit:

• Business visa – allows visits to India of up to 6 months to conduct business for a non-Indian company. • Employment visa – required for foreigners coming to India for employment. The maximum length for this visa is 5 years, although it is not always guaranteed that the visa will be issued to cover the entire duration of an employment contract. However, it is possible to get this visa extended. This visa offers the possibility to live and work in India on a more permanent basis.

www.morisonksi.com India 12 The Indian tax system can broadly In the case of an Indian company, Taxation be classified into two categories: the income earned anywhere in the System direct and indirect taxes. world is taxable in India. Income tax Sources of income

Under Section 4 of the Income Tax When calculating total income for Act, 1961 (‘the Act’), income tax tax purposes, all income earned by is charged for every assessment a company is classified under the year at the rate(s) prescribed in the following headings: Finance Act on each person’s total income from the previous year. • Income from house property Everyone required to pay tax is • Profits and gains from business or known as an ‘assessee’. profession

‘Previous year’ means the financial • Capital gains year immediately preceding the • Income from other sources. assessment year; ‘assessment year’ means the period of 12 months Ascertainment of taxable income running from 1 April to 31 March (the and tax payable Indian fiscal year). Figure 2 illustrates how taxable Meaning of ‘foreign company’ income is determined.

A foreign company is any company Figure 2. Process for calculating taxable income that is not a domestic company. A domestic company is defined as Aggregate of income from all sources less adjustment for set-off and carry forward of ‘an Indian company, or any other loses company, which, in respect of Equals its income is liable to tax under this Act, has made the prescribed Gross total income (GTI) arrangements for the declaration and payment, within India, of Less the dividends payable out of such income’. In other words, any All owable deductions company incorporated in India will

be a domestic company. Equals

Concept of ‘residence’ Total income

A company is said to be resident in Apply the Tax Rate India in any previous year either if it is an Indian company or if its ‘place of Amount of tax to be paid effective management’ (POEM) that year is in India. A company’s POEM is Equals wherever it makes key management and commercial decisions. Tax payable

Scope of total income Advance tax In case of a foreign company, only income that is received or deemed The tax for the current assessment to be received in India, or accrues year must be estimated by the or arises or is deemed to accrue company and paid in advance in four or arise in India, is taxable in India. instalments: www.morisonksi.com India 13 • By 15 June: 15% of the total tax Income tax returns income exists (i.e. where the payable for that assessment year business establishment is situated Every company is required to file its or where the asset/property is • By 15 September: 45% of the total income tax return by the due date located), whether the income tax payable for that assessment specified in the Act (currently 30 earner is a resident in that country year September of the assessment year). or not. • By 15 December: 75% of the total For companies that need to submit • Residential status – if a person tax payable for that assessment a transfer pricing report along with is resident of a country, they year their income tax return, the deadline may also have to pay tax on is 30 November in that assessment • By 15 March: 100% of the total tax any income earned outside that year. payable for that assessment year. country. Interest Minimum alternate tax Some countries may follow a mixture of these two rules, which can results In case of default on the payment The provisions for paying MAT apply in the problem of double taxation if of advance tax, a company is liable to a foreign company, just as they do a person is taxed on the basis of the to pay interest under Sections to an Indian company. Even if there source of income rule in one country 234B and 234C of the Act. Interest is no tax payable for any assessment and residential status in another under Section 234B is levied if the year according to the computations country, or a mixture of the two advance tax paid is less than 90% of the Act (normal provisions), the rules. company would be liable to pay of the assessed tax (total tax less tax deducted at source). Interest tax at 18.5% of its book profits, plus In India, income tax liability is under Section 234C is levied if applicable surcharges and health based on the assessee’s residential there is a default in the payment and education cess, as follows: status during the previous year. If of instalments of advance tax. If resident in India, they must also there is any delay in filing its income • In case of a foreign company, 2% pay tax on any income accrued, return, the company is subject to surcharge (if book profit is INR arising or received outside India. interest under Section 234A. The 10–100 million) or 5% surcharge The position in many other countries rate of interest under all these (if book profit exceeds INR 100 being broadly similar, it frequently sections is 1% per month or part million) plus health and education happens that a person may be of the month. With effect from cess at 4% found to be a resident in more than assessment year 2004–05, where one country or that the same item • In case of a domestic company, a refund is granted to an assessee of their income may be treated as 7% surcharge (if income is INR based on the income tax return accruing, arising or received in more 10–100 million) or 12% surcharge and the assessment proceedings than one country – with the result (if income exceeds INR 100 million) conclude that no refund was due or that the same item becomes liable to plus health and education cess at that the refund was excessive, then tax in more than one country. 4%. under Section 234D the assessee is liable to pay simple interest at 0.5% Relief against such hardship can be per month or part of the month on In other words, this is the minimum provided via bilateral or unilateral the whole or excess refund amount. amount of tax that the company relief: would have to pay if its accounts show profits. Double taxation avoidance Bilateral relief agreements Audit of accounts The governments of two countries Taxation of the same income of a can enter into a DTAA to provide In addition to the requirements of person in more than one country can relief against such double taxation, audit as per the provisions of the arise when countries follow different worked out on the basis of mutual Companies Act, 2013, a company is rules for income taxation. There are agreement between the two subject to a further audit (commonly two main rules for income taxation: concerned sovereign states. This referred to as the tax audit). A tax may be called a scheme of ‘bilateral audit is applicable when the gross • Source of income – the income relief’, as both concerned powers turnover or receipts for a financial may be subject to tax in the agree on the basis of the relief to be year exceeds INR 10 million. country where the source of such granted by either of them.

www.morisonksi.com India 14 Unilateral relief These measures will prevent treaty or any part of the tax, or after abuse, improve dispute resolution, deducting fails to pay such tax as Bilateral relief is not always possible, prevent the artificial avoidance of required by the provisions of the since no country can reach such an permanent establishment status, Income Tax Act, 1961, then Section agreement with all the countries and neutralise the effects of hybrid 201(1A) specifies that they are liable of the world for all time. Given the mismatch arrangements. to pay simple interest: crippling hardship of the taxpayer in all such cases, some relief can The MLI modifies tax treaties that are • At 1% for every month or part of be provided by the home country, ‘covered tax agreements’. A covered a month on the amount of such regardless of whether the other tax agreement is a DTAA that is in tax from the date on which such country has any agreement with force between parties to the MLI tax was deductible to the date on India or has otherwise provided for and for which both parties have which such tax is deducted any relief in respect of such double made a notification that they wish to • At 1.5% for every month or part of taxation. This is known as unilateral modify the agreement using the MLI. the month on the amount of such relief. tax from the date on which such The MLI allows jurisdictions to tax was deducted to the date on Multilateral instruments swiftly implement measures to which such tax is actually paid. strengthen existing tax treaties On 7 June 2017, 68 jurisdictions to protect governments against Advance ruling signed the MLI during a signing tax avoidance strategies that ceremony hosted by the OECD inappropriately use tax treaties to A foreign company can seek an in Paris. Four more jurisdictions artificially shift profits to a low- or advance ruling from the Authority (Cameroon, Curacao, Mauritius and no-tax location. for Advance Rulings on any question Nigeria) signed the MLI after the of law in relation to a transaction first ceremony. On 24 January 2018, Withholding tax / Tax deduction at that is proposed to be undertaken six additional jurisdictions signed source by the company. Such a ruling is the MLI during a second signing binding upon the applicant and the ceremony that took place at the Payments made to foreign income tax authorities. OECD Headquarters in Paris in companies are subject to conjunction with a plenary session withholding tax as per the rates Transfer pricing of the Inclusive Framework on Base applicable for the relevant Erosion and Profit Shifting (BEPS). assessment year. Section 206AA All international transactions Four other jurisdictions (Algeria, provides that if the permanent between associate concerns that Kazakhstan, Oman and Swaziland) account number (PAN) number of take place after 1 April 2001 would expressed their intent to sign the the deductee is not available, tax have to comply with the transfer MLI in the near future. is deducted at the rates prescribed pricing guidelines. As a result, any in the Act, or the rates in force, or income arising from an international Signatories of the MLI may choose 20% (whichever is highest). Thus, transaction in the hands of an entity which existing tax treaties they if a foreign company/non-resident in India shall be computed having would like to modify using the MLI. has no PAN, any payment to them regard to the arm’s-length price. Once a tax treaty has been listed is subject to the higher rate of Non-disclosure or non-computation by the two parties, it becomes an tax. However, where the payment of such arm’s-length price is agreement to be covered by the is in the nature of royalties, fees subject to penalty provisions. A MLI. The current signatories have for technical services, interest or company must obtain a transfer listed over 2,350 treaties, already transfer of any capital asset, then pricing report from a chartered leading up to over 1,100 matched (subject to furnishing of certain accountant using Form 3CEB, which agreements. specified details) no PAN of the has to be submitted to the tax non-resident would be required. In authorities within the prescribed Abuse of tax treaties is an important certain cases, a foreign company is time. In addition, in accordance source of BEPS. The MLI helps the also required to deduct withholding with the Finance Act, 2012, the fight against BEPS by implementing tax on payments made by it to a provisions of transfer pricing have the tax treaty-related measures person resident in or outside India. been made applicable to specified developed through the BEPS Project domestic transactions. However, in existing bilateral tax treaties in a If any person, principal officer or according to the Finance Act, 2017, synchronised and efficient manner. company does not deduct whole the transactions between specified www.morisonksi.com MaltaIndia 15 persons under Section 40A(2)(b) determination cannot be based on Rate of tax have been omitted. The threshold isolated facts limit for specified domestic Foreign companies are currently • If, during the tax year, the POEM transactions to be subjected charged tax at 40% plus 2% exists both inside and outside India, to transfer pricing provisions is surcharge (if income is INR 10–100 the POEM is presumed to be in INR 200 million. million) or 5% surcharge (if income India if it is predominantly in India. exceeds INR 100 million) and health and education cess at 4% on their Place of effective Test for determining the POEM of a business profits and income arising management foreign company from short-term capital gains. Long- term capital gains are taxed at 20% On 24 January 2017, India’s Central The POEM of a foreign company under Section 112 of the Act. Short- Board of Direct Taxes issued final is based on whether it has active term capital gains other than those guidelines on testing a place of business inside or outside India. If it already outlined are taxed at 15% effective management (POEM) is established that it has ABOI, then under Section 111A (i.e., inclusive when determining Indian residency its POEM is considered to be outside of securities transaction tax). status of a non-Indian company India. Several direct and deeming These rates are subject to certain (‘the Guidelines’). The Guidelines parameters have been chalked out exceptions, where the income is emphasise that the POEM test is one to establish ABOI, which must be taxed on a gross basis but at a lower of ‘substance over form’. It provides determined separately each year. that a POEM determination is based rate of tax. on whether a company has ‘active ‘No POEM’ scenarios business outside India’ (ABOI). Indian companies (other than eligible startups) are charged to tax at 30% The POEM cannot be established as plus a surcharge of 7% (if income General principles for determining being in India merely because one is INR 10–100 million) or surcharge POEM – ‘substance over form’ or more of the following conditions of 12% (if income exceeds INR 100 approach exist: million) and health and education cess at 4%. Table 2 provides a The Guidelines provide the following • Foreign company is wholly owned comparison with foreign companies. general principles of relevance for by an Indian company determining POEM: • Foreign company has a permanent The effective dividend distribution establishment in India tax rate is 20.56%, and the effective • The entity may have more than tax rate on buy-back of unlisted one place of management, but • One or some of the directors of a shares by domestic companies is can have only one POEM foreign company reside in India 23.30%. • Principles in the Guidelines have • Local management in India relates equal weights to activities carried out by a General anti-avoidance rules foreign company in India • Review and study of all facts (GAAR) related to the management • Support functions that are and control of the company preparatory and auxiliary in GAAR, as introduced by the are necessary, as the POEM character are based in India. Finance Act, 2017, aims to counter

Table 2. Comparison of tax liability based on the company’s POEM and income

Domestic company Foreign company Rate of CIT (%) Income (INR) Turnover more than INR 2,500 Turnover less than INR 2, 500 million in FY 2018–19 million in FY 2018–19 Effective normal Effective normal Effective normal tax % Effective MAT % Tax % Effective MAT % tax % Effective MAT % <10 million 31.2 19.24 26.00 19.24 41.6 19.24 10–100 million 33.384 20.587 27.82 20.587 42.432 19.625 >100 million 34.944 21.549 29.12 21.549 43.68 20.202 CIT, corporate income tax; FY, financial year; INR, Indian ; MAT, minimum alternate tax. www.morisonksi.com India 16 aggressive tax avoidance schemes. Country-by-country reporting It empowers officials to deny the tax benefits on impermissible avoidance In its BEPS report, to standardise arrangements, the main purpose of transfer pricing documentation which is to obtain a tax benefit. The across the countries, the OECD initial onus here would be on the tax recommended a three-tiered authorities to prove that the main structure consisting of: purpose is to obtain a tax benefit. • A master file containing Legislative changes in standardised information relevant accordance with BEPS Action to all multinational enterprises (MNE) group members Plan • A local file containing all material India has been an active member of transactions of the local taxpayer the Organisation for Economic • A CbC report containing Co-operation and Development information relating to global (OECD)’s Base Erosion and Profit allocation of the MNE’s income, Shifting (BEPS) initiatives and played taxes, etc. its part in reaching international consensus. The following legislative The Finance Act, 2016 introduced changes have been made towards this concept to provide a specific implementation of BEPS structure for CbC reporting and the recommendations. master file. These provisions are applicable from assessment year Equalisation levy 2017–18. CbC reporting will apply only to large taxpayers – i.e., those Introduced by the Finance Act, having an annual consolidated 2016 with effect from 1 June 2016, group turnover of €750 million in India’s equalisation levy is how the the immediately preceding financial government plans to align with year. the OECD’s BEPS Action Plan 1 – addressing tax challenges faced in a This provision results from the digital economy. OECD report on Action 13 of the BEPS Action Plan to revise The equalisation levy means standards for transfer pricing that which tax will be levied on documentation and provide a consideration received/receivable template for CbC reporting. This by a non-resident for rendering any three-tier documentation will require specified service. taxpayers to articulate consistent transfer pricing positions and The levy will be charged at the rate will provide tax administrations of 6% of the amount of consideration with useful information to assess (INR 0.1 million or more) for specified transfer pricing risks. It will help tax services (online advertisement, administrations to determine where provision of digital advertising space, their resources can most effectively or any other facility or service for the be deployed, and, where audits are 10 purpose of online advertisement) required, provide information to received/receivable by: initiate and focus audit enquiries. This reporting system will not • A person resident in India only provide more transparent and carrying on business or information on MNEs for the tax profession; or authorities, but also ensure closer 10. This list of relevant services can be • A non-resident having a compliance with documentation modified at any point by the central permanent establishment in India. requirements. government. www.morisonksi.com India 17 Limitation of interest a number of EU member states), and Custom duty already form part of the transfer Section 94B of the Finance Act, pricing rules of many leading world All imports, unless specified exempt, 2017 has introduced provisions economies. Although approaches to are subject to custom duty. The with regard to limitation of interest: secondary adjustment vary from one general rates are 5%, 10% or 15%. with effect from assessment year country to another, it represents an There are special rates for special 2018–19, interest expenses claimed internationally recognised method products. by an entity in respect of payment to align the economic benefit of the to its non-resident associated transaction with the arm’s-length Trade policy enterprise (AE) or to a third party (if position. the AE provides an implicit/explicit Under the Indian government’s guarantee to the lender) has been Goods and services tax foreign trade policy, special restricted to 30% of earnings of incentives are given to export- the company before interest, tax, Goods and Services Tax (GST) is oriented units set up in electronic depreciation and amortisation or an indirect tax (or consumption hardware technology parks, interest paid (whichever is less). In tax) levied in India on the supply of software technology parks and order to target only large interest goods and services. GST is levied biotechnology parks. These payments, the threshold of interest at every step in the production incentives include: expenditure is INR 10 million. These process, but is meant to be refunded provisions are in line with the to all parties in the various stages • Import of products on payment of recommendations of the OECD of production other than the final duty at a concessional rate Action Plan 4 (which mentions consumer. 10–30%) to address BEPS via excess • Duty-free import of second-hand capital goods interest deductions. The tax came into effect from 1 July 2017 through the Indian • 100% of export earnings can be Secondary adjustment government’s implementation of the retained in foreign currency in a 101st Amendment of the Constitution special account, the Exchange With effect from assessment year of India. The tax replaced existing Earners Foreign Currency Account. 2018–19, the Finance Act, 2017 multiple cascading taxes levied by has introduced the concept of the central and state governments. Furthermore, to augment exports secondary adjustment. This means and generate employment, the an adjustment in the books of The tax rates, rules and regulations government has introduced the account of the assessee and its AE are governed by the GST concept of the special economic to reflect that the actual allocation Council, which consists of all the zones (SEZ). A SEZ is a clearly of profits between the assessee central and state finance ministers. delineated duty-free enclave – and its AE are consistent with the GST is meant to replace a slew of deemed to be foreign territory for transfer price determined as a result indirect taxes with a unified tax and the purposes of trade operations, of primary adjustment, thereby is therefore expected to reshape the duties and tariffs. Like export- removing the imbalance between country’s US$2.4 trillion economy. oriented units (EOUs), units set up in the assessee’s cash account and a SEZ are entitled to various benefits actual profit. The concept of re- The total GST revenue collected and incentives. characterizing the main transfer between August 2017 and March pricing adjustment and again 2018 was INR 719,080; during subjecting it to tax consequences that 8-month period, the average is generally regarded as ‘secondary monthly collection has been INR adjustment’. Secondary adjustment 89,885. shall not be carried out if the primary adjustment does not exceed INR 10 In the GST regime, businesses with million and the primary adjustment is a turnover exceeding INR 2 million made in respect of assessment year (INR 1 million for northeastern and 2016–17 or earlier. hill states) are required to register as a normal taxable entity (‘GST These provisions are internationally registration’). recognised in a number of other jurisdictions (including the USA and www.morisonksi.com India 18 Banking and Banking Microcredit institutions India has an extensive banking Microcredit institutions extend Finance system that is conducive to very small loans (microloans) international business. The Reserve to those individuals who lack Bank of India (RBI) is the supreme collateral, steady employment monetary authority controlling the and a verifiable credit history and banking system, following the legal therefore fail to meet the minimal framework provided by the Banking criteria for accessing traditional Regulation Act, 1949. credit. Microcredit institutions are becoming an important vehicle in Indian banks can be broadly the government’s drive for financial classified into public-sector banks inclusion. (the government holds a majority stake in all such banks), private- Obtaining credit facilities sector banks (the government has from banks no stake in these; they may be publicly listed and traded on stock A business organisation seeking exchanges) and foreign banks. to secure finance in India must Public-sector banks are the pillars convince the bank/financial of the banking sector in India, institution of the loan’s security accounting for more than 70% of and the borrower’s ability to meet the total banking industry assets. repayment commitments, including any interest. The size of the loan This wide network of banks and and security offered will determine financial institutions offers a how much information the financiers variety of financial products and require; however, the information services such as retail banking, and documents listed below are debt syndication, financial advisory generally expected to be provided services, portfolio management and by the borrower: asset management. • Borrower’s financial background Non-banking finance • Memorandum of association, companies articles of association and certificate of incorporation NBFCs play a key role in the growth of the economy. An NBFC is a • Proof of identity of authorised company incorporated under the signatory/director Indian Companies Act 2013 and is • List of directors, shareholding a specialised financial institution pattern, and any related that supplies credit for the documents of authentication purchase of consumer goods and services or by granting small loans • Statements for all bank accounts directly to consumers. There are • Description of purpose of loan various finance companies in India supporting the financial needs of • Draw-down requirements, business organisations. repayment provisions, etc. • Details of any available security NBFCs perform functions similar to those of banks; however, NBFCs • Demonstrated ability to service cannot accept demand deposits, both the interest and debt and an NBFC is not a part of the repayment payment and settlement system as • Copies of financial accounts for it is not authorised to issue cheques. past few years www.morisonksi.com India 19 • Certified extract of directors’ orderly growth of the insurance resolution for acceptance of bank industry, the India government has "The Indian capital facilities. set up the Insurance Regulatory and market is among the Development Authority (IRDA). The Opening a bank account IRDA Act of 1999 deregulated the most vibrant in the insurance sector in India, allowing world, with seven private companies to enter; FDI is A company opening a bank account stock exchanges – in India usually needs to produce the allowed (under the RBI’s automatic following documents: route, up to 49% of the total all of them tightly capital held by the Indian insurance regulated and • A duly certified board resolution companies). To date, the IRDA for opening a bank account has allowed the registration of 24 technologically private life insurance companies advanced" • Certified true copy of the and 30 general insurance (non-life) memorandum of association and companies. articles of association • Government securities (G-Sec) • List of present directors, indicating Capital market market – the most dominant their percentage holding and their category in the Indian debt residential address The Indian capital market is among market, consisting of central and • Copy of PAN card the most vibrant in the world, with state government securities seven stock exchanges as of 31 • Bond market – bonds and • Proof of company’s address, August 201811 – all of them tightly debentures issued by financial evidenced by regulated and technologically institutions, corporates and advanced. Foremost among these —— Certificate of Incorporation public sector undertakings. These are the National Stock Exchange and issued by Registrar of bonds are issued to meet financial the (BSE), Companies requirements at a fixed cost. one of the oldest in Asia. Since it —— Acknowledged copy of began formal trading in 1875, the Financial regulators, the Securities income tax return BSE has facilitated the growth of the Exchange Board of India, the RBI, Indian corporate sector by providing —— Bank statement the Ministry of Corporate Affairs it with an efficient capital raising and various stock exchanges all —— Leave and license agreement/ platform. Today the BSE is the oversee the capital markets in their agreement of sale. world’s premier exchange in terms designated jurisdictions, to ensure of the number of listed companies that investors are well-informed Insurance (over 5,000); the fifth most active, and protected against fraudulent in terms of number of transactions practice. In India, insurance is mainly of handled through its electronic two types: life insurance and trading system; and among the general insurance. Until 1999, the top 10 global exchanges in terms insurance sector was regulated of market capitalisation of its listed and was under the direct control companies. of the government. Life insurance business was handled by the Life Debt market Insurance Corporation of India, while non-life insurance business The Indian debt market is one of the was conducted by four nationalised largest in Asia. As elsewhere, the insurance companies – the United debt market in India is considered India Insurance Co. Ltd, the New a useful alternative to banking India Assurance Co. Ltd, the Oriental channels for obtaining finance. Insurance Co. Ltd and the National Importantly, the debt instruments Insurance Co. Ltd. used in India mean that the return is fixed, so the risks are considerably To protect the interests of the reduced. The Indian debt market can holders of insurance policies, and be classified into two categories: 11. https://www.sebi.gov.in/stock- to regulate, promote and ensure exchanges.html www.morisonksi.com India 20 This section outlines India’s plans for Reporting aligning with IFRS.

Requirements • There are two sets of Accounting Standards: —— Indian AS, which comply with IFRS with minimal local modifications —— Existing notified AS. • In Phase I, companies with a net worth of more than INR 5 billion, whether listed or unlisted, must adopt Indian AS from the financial year 2016–17. • In Phase II, all remaining listed companies, and unlisted companies with a net worth of more than INR 2.5 billion, must adopt Indian AS from the financial year 2017–18. • Indian AS will be applicable to both standalone and consolidated financial statements. • Plans for banks, NBFCs and insurance companies have been specified separately, with effect from 1 April 2018 for Phase I and 1 April 2019 for Phase II.

Companies that are not required to adopt Indian AS will continue to apply notified AS, i.e. Companies (Accounting Standards) Rules, 2006, read with Companies (Accounting Standards) Amendment Rules, 2016.

www.morisonksi.com India 21 throughout their life cycle. Since its creativity and imagination right Grants and launch in January 2016, the initiative from school age, AIM recently has successfully given a head start launched Atal Tinkering Labs (ATL) incentives to numerous aspiring entrepreneurs. across India. ATLs are workspaces With a 360° approach to enable where students can work with tools startups, the initiative provides a and equipment to gain hands-on comprehensive 4-week free online training in the concepts of STEM learning programme, and has set (Science, Technology, Engineering up research parks, incubators and and Mathematics). Atal Incubation startup centres across the country Centres (AICs) are another aspect by creating a strong network of of AIM, created to build innovative academia and industry bodies. startup businesses as scalable and More importantly, a ‘Fund of Funds’ sustainable enterprises. AICs provide has been created to help startups world-class incubation facilities with gain access to funding. At the appropriate physical infrastructure core of the initiative is the effort in terms of capital equipment and to build an ecosystem in which operating facilities. These incubation startups can innovate and excel centres, with a presence across without any barriers, through such India, provide access to sectoral The Indian government has mechanisms as online recognition experts, business planning support, undertaken several initiatives of startups, Startup India learning seed capital, industry partners and and instituted policy measures to programme, facilitated patent training to encourage innovative foster a culture of innovation and filing, easy compliance norms, startups. entrepreneurship in the country. relaxed procurement norms, While job creation is the foremost incubator support, innovation- Tax incentives scheme challenge facing India, its unique focused programmes for students, demographic advantage offers funding support, tax benefits and To strengthen the startup ecosystem immense potential to innovate, addressing of regulatory issues. in the country and provide support, foster entrepreneurship and create the Indian government offers several jobs for the benefit of the nation and Atal Innovation Mission tax benefits to startups recognised the world. This section describes just under the National Startup Policy a few of the efforts being made in AIM is the government’s endeavour (Table 3). this direction. to promote a culture of innovation and entrepreneurship, and it serves Benefits include a 7-year tax holiday, Startup India as a platform for promotion of beginning from the year the startup world-class innovation hubs, grand is incorporated; exemption from Through the Startup India initiative, challenges, startup businesses and tax on long-term capital gains; and the government promotes other self-employment activities, approval to offset carry-forward entrepreneurship by mentoring, particularly in technology-driven losses and capital gains in case of a nurturing and facilitating startups areas. Encouraging curiosity, change in shareholding pattern.

Table 3. Overview of tax deductions and incentives for business in India

Industry-specific Tax incentives Profits and gains derived by an eligible startup from specified 100% of profit of 3 consecutive assessment years out of 7 years business on or after 1 April 2017 (subject to certain conditions) beginning from the year in which the eligible startup is incorporated Business of processing, prevention and packaging of fruits and 100% tax holiday for the first 53 years and a deduction of 30% (25% if vegetables; handling, storage, and transportation of food grains; the assessee is not a company) of profits for the subsequent 5 years processing and packaging of meat and meat products or poultry, marine and dairy products Export-linked Tax incentives Employment of new workers. All taxpayers whose total sales, turnover Additional deduction of 30% of the cost incurred on a new employee or gross receipts exceed INR 10 million Startup businesses engaged in innovation, development, deployment 100% deduction for profits and gains for three consecutive years out or commercialisation of new technology- or intellectual property- of 7 years, starting from the year startup was incorporated driven products, processes or services www.morisonksi.com India 22 The Union Finance Ministry of India Companies Act and associated Acts, Agencies comprises five departments: rules and regulations that regulate the functioning of the corporate Providing • Department of Economic Affairs sector – including the Competition Act, 2002; the Partnership Act, 1932; • Department of Expenditure Assistance the Limited Liability Partnership Act, • Department of Revenue 2008; the Companies (Donations • Department of Investment and to National Funds) Act, 1951; the Public Asset Management Insolvency and Bankruptcy Code, 2016; and the Societies Registration • Department of Financial Services. Act, 1980. The Ministry also exercises supervision over three professional Department of Industrial bodies that are constituted under Policy and Promotion three separate Acts of the Parliament for proper and orderly growth of From 24 May 2017, the Government their respective professions: the of India has abolished the Foreign Institute of Chartered Accountants Investment Promotion Board (FIPB); of India, the Institute of Company on 5 June 2017, they also issued an Secretaries of India, and the Institute office memorandum that established of Cost and Works Accountants of the DIPP as the nodal agency for India. coordinating FDI proposals requiring government approval and entrusted it The following offices are affiliated with the task of preparing and issuing to the Ministry of Corporate Affairs: a standard operating procedure (SOP) for processing FDI applications. • Serious Fraud Investigation Office • Competition Commission of India Directorate General of Department of Commerce • Indian Institute of Corporate Foreign Trade Affairs. The Department of Commerce has been set up under the Ministry of Known before 1991 as the Chief Registrars of Companies Commerce and Industry to regulate, Controller of Imports and Exports, the DGFT is a government develop and promote India’s Registrars of Companies – organisation responsible for the international trade and commerce. appointed under Section 396 of the formulation of national export Its basic role is to facilitate an Companies Act, 2013 – are vested and import (EXIM) guidelines and environment and infrastructure with the primary duty of registering principles. The DGFT is responsible that will encourage accelerated companies floated in the respective for implementing the foreign trade growth of international trade. The states and union territories, ensuring (EXIM) policy, with the main objective department formulates, implements that they comply with statutory of promoting Indian exports. and monitors the appropriate requirements. These offices keep international and commercial a registry of company records policies – including the foreign Securities and Exchange that are available for inspection by trade policy, which provides a basic Board of India members of the public on payment framework for strategies to be of the prescribed fee. The central followed in promoting exports and SEBI was established on 12 April government exercises administrative trade. 1992; its basic function is to regulate control over these offices through the securities market, promoting its the respective regional directors. Ministry of Finance development while protecting the interests of investors. The Ministry of Finance is concerned with taxation, financial legislation, Ministry of Corporate Affairs financial institutions, capital markets, central and state finances, and the The Ministry is primarily concerned union budget. with administration of the www.morisonksi.com India 23 The Next Step

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