India's Taxes for Foreign-Invested Entities

Issue 18 • January 2013 Inside This Issue:

An Overview of India’s Taxes 3 on Business In this article, we give a brief overview of India’s major taxes and duties on business, as well as double taxation avoidance agreements.

Individual Income Tax From Dezan Shira & Associates Rates and Deductions 7 Individual income tax (IIT) payments are determined by income source, residency, amount, and other factors

India’s Tax Reforms in 2013 9 The Indian Government has tabled a measure of reforms to be introduced to create a more favorable environment for foreign investment.

India’s Taxes for Foreign-invested

Scan this QR code with your smartphone to visit: Entities www.india-briefing.com/news Issue 18 • January 2013 Introduction

The year 2012 was eventful in India with the ongoing debate and implementation on foreign direct investment (FDI) in multi-brand retail and of course the controversy about retrospective tax amendments.

Specifically, the decision of former finance minister, Pranab Mukherjee, to amend tax laws retrospectively connected to the Vodafone case caused worry among foreign investors about ad hoc changes to India’s tax Olaf Griese regime. A committee headed by tax expert Parthasarthy Shome was pulled in to advise. In a statement in Partner early December, Finance Minister P Chidarmbaram said the government would soon announce changes Dezan Shira & Associates in the tax framework to bring about clarity on the retrospective taxation of indirect transfers. New Delhi Office [email protected] This tax amendment controversy creates an excellent opportunity to provide an overview of the relevant taxes for foreign-invested entities, including the most important points for 2013 – goods and service tax (GST) reform, proposed tax revisions under the 2013-14 Budget, the entry into force of several double taxation agreements (DTAAs), and new General Anti-avoidance Rules (GAAR).

We begin with an overview of India’s taxes on business, which includes a section on India’s double taxation avoidance agreements, and then discuss individual income tax rates and deductions. Finally, we discuss India’s tax reforms in 2013, including an article by Chandrahas Choudhury, New Delhi correspondent for Bloomberg View, “Can India Tax Itself to Prosperity?” Warm regards,

Olaf Griese

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2 - INDIA BRIEFING | 2013 An Overview of India’s Taxes on Business

n this article, we give a brief overview of India’s major taxes and duties on business, including Corporate Income Tax, Dividend Distribution Tax, Minimum Alternative Tax, Value-Added Tax, Central Sales Tax, Goods And Service Tax, Customs Duty, Excise Duty (CENVAT) Service Tax, Capital Gains Tax, Wealth Tax, and Withholding Tax.

The central and state governments provide various tax incentives for foreign investors establishing companies in India, including indirectI and direct tax incentives, reductions in indirect taxes (sales tax and tax depreciation allowance), tax deduction for the first ten years of operation of new industrial units in specific areas, and special tax provisions for 100% export-oriented operations. Special economic zones offer additional important benefits and tax reductions.

1. Corporate Income Tax Corporate income tax is levied against profits and income under Corporate Income Tax Rates* the provisions of the Income Tax Act. Corporate income tax must be Domestic Companies 30% plus education fee (cess) of 3% paid by all types of foreign-invested entities, except for liaison offices, Foreign Companies 40% plus education fee (cess) of 3% which are not permitted to earn income. Foreign and domestic *surcharge may be applicable if total income is in excess of INR10,000,000 companies are subject to different corporate income tax rates. A company is considered a foreign company if its core management Corporate income tax must be paid in increments throughout (i.e. where key decisions on management are made) is located the year according to the advance corporate tax (ACT) payment outside of India for the duration of the year. schedule.

Advance Corporate Income Tax (ACT) Payment Schedule 2013 2014 Apr May Jun Jul Aug Sep Nov Dec Jan Feb Mar

July 15 Sept 15 Dec 15 Mar 15 15% ACT 45% ACT 75% ACT 100% ACT

* On estimated income, culumative percentage

2. Dividend Distribution Tax

Dividend distribution tax (DDT) is levied against the distributing Indian company, not its shareholders, at 16.22% on dividends.

3. Minimum Alternative Tax

Previously, there were large number of companies who had book income tax payable on the taxable income according to normal profits as per their profit and loss account, but were not paying provisions of the Income Tax Act is less than 18% of the adjusted any tax because their income computed as per provisions of the book profits. MAT is levied at 18.5% on book profits, plus surcharges Income Tax Act was either nil or negative. To tax such companies, and education fee (cess). minimum alternative tax (MAT) is levied on companies for which

2013 | INDIA BRIEFING - 3 An Overview of India’s Taxes on Business

4. Value-added Tax, Central Sales Tax, and Goods and Service Tax

At time of writing, Indian states impose a Value-added Tax (VAT) on manufacturing inputs, or for specified activities, 2% sales tax applies. most types of goods at a standard rate of 12.5%, with lower rates The government plans to introduce Goods and Service Tax to replace of 4% and 1%. There is no VAT on imports into India and exports Central Sales Tax (CST), with planned implementation in April 2013. are zero-rated. Businesses with less than Rs500,000 turnover are The dual GST model would come with two tax rates: one that will exempt from VAT. be charged uniformly across the states and another by the central government. Legislation is still being shaped, but it is likely that Central Sales Tax applies to goods traded interstate. If registered virtually all goods and services will be included, with minimum dealers buy and sell goods for the purpose of trading, for exemptions including alcohol, tobacco and petroleum products.

5. Customs Duty

Customs Duty is applied to certain goods being imported into and The rate of customs duty depends on classification under the being exported from India. For most goods, customs duty rates Customs Tariff Act, which is aligned with the World Customs are up to 10% on the transaction value of imports or exports. An Organization’s Harmonized Commodity Description and Coding education fee of 2% is levied on the aggregate of the customs duty System of Tariff Nomenclature (HSN). on imported goods.

6. CENVAT (Excise Duty)

Central Value-added Tax (CENVAT) is levied on the manufacturing or in the Central Excise Tariff Act. Most products attract excise duties production of moveable goods at rates according to classification at a rate of 10%, with the peak at 12%.

7. Service Tax

Those providing taxable services are liable to pay Service Tax, which is the previous financial year. In October 2012, CBEC (Central Board levied at 12.36%. Small service providers are exempted from Service of Excise and Customs), the governing authority of Service Tax, Tax where value of taxable service does not exceed Rs1,000,000 in changed the service tax return filling from half yearly to quarterly.

8. Capital Gains Tax

The tax rate on capital gains in India varies based on the type of asset Equities held for more than one year, other assets held for more (shares, property, debt instruments), the length of time the investor than three years, and real estate are considered long-term capital has held the asset, and whether the transactions have taken place and generally taxed at a basic rate of 20%. Short-term capital gains on a recognized stock exchange in India. When the income from (securities held for less than one year, three years for other assets) are a sale is classified as business income under Indian law, it will be taxed at the normal corporate income tax rate, which is usually 30%. taxable in India, but only if such income accrues or arises in India or is attributable to a “business connection” in India. The rate of tax Relief from certain types of capital gains is often sought through applicable to the business income of non-residents is higher than double taxation avoidance agreements. the rate applicable to domestic entities: approximately 42%.

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4 - INDIA BRIEFING | 2013 An Overview of India’s Taxes on Business

9. Wealth Tax

Wealth tax is charged annually at a rate of 1% on individuals and companies with over INR3 million in non-productive assets.

10. Withholding Tax Withholding Tax Rates* The Income Tax Act provides for deduction of tax at source on Interest 20% payments. These provisions are also applicable in case of payment Dividends 0% made to non-residents. The person responsible for payments to Royalties 10% non-resident should deduct tax at source at the time of payment or Technical Services 10%, plus applicable surcharge and at the time of credit of the sum to the account of the non-resident. education cess Any other Services Withholding tax rates for payments made to non-residents are • Individuals 30% of net income determined by the Finance Act passed by the Parliament. • Companies/Corporate 40% of net income *The above rates are general and in respect of the countries with which India does not have a Double Taxation Avoidance Agreement (DTAA).

ASSOCHAM Tax Proposals for 2013-2014 National Budget

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) 2013-2014 pre-Budget memorandum, released in December 2012, called upon the government to make a number of tax cuts. “The Indian industry is facing competitive disadvantages due to complex multi-layered tax indirect tax structure having cascading effect on cost, high compliance cost and prolonged tax litigation,” the pre-Budget memorandum stated.

Tax proposals in the memorandum included:

• Bringing the effective rate of corporate tax down from 32.45% to 25%.

• Reversing recent increases to service tax rates from the current 12% rate, back to the 8% rate in place two years ago, with revenue loss offset by higher customs duty rates. By increasing customs rates, the government can protect the domestic industry from unfair competition from countries like China, the press release stated.

• Increasing the exemption threshold for personal income tax to INR300,000 (US$5,500), to improve tax compliance rates, and boost consumer consumption and savings.

• Industry-specific adjustments: Addressing the tax treatment of the synthetic fiber industry, which attracts an excise duty rate of 12%, up from 4% in 2008, while cotton fiber is exempt from excise duties.

Introducing a concessionary 2% service tax to support the construction services industry and partially offset the revocation of the service tax credit that was in place prior to April, 2011.

Exempting the domestic repairs, maintenance and overhaul services sector from service tax to encourage foreign direct investment in the aviation sector.

Removing the additional levy of tax by way of surcharge and education cesses on corporate assesses and education cess on non-corporate assesses. The surcharges, including the education cess, were levied as a temporary measure.

? For assistance with taxes in India, including tax planning, compliance and advisory, please contact Dezan Shira & Associates by emailing [email protected] or visiting www.dezshira.com.

2013 | INDIA BRIEFING - 5 An Overview of India’s Taxes on Business

India’s Double Taxation Avoidance Agreements (DTAAs)

Double taxation avoidance agreements (DTAs or DTAAs) aim to prevent the same income from being taxed by two or more states, while also eliminating tax evasion and encouraging cross-border trade efficiency. DTAs prevent double taxation by allowing the tax paid in one of the two countries to be offset against tax payable in the other country, and/or by providing exemptions or reduced tax rates for specific income types such as interest, royalties, dividends. In India, withholding tax on dividends is 0% per the Tax Act, but DTAs serve to reduce interest and royalty rates.

The table below reflects India’s double taxation avoidance agreements (DTAAs) in effect. In certain cases (such as in the case with states from the former Soviet Union), rates represent treaties between groups of countries. In cases in which a treaty does not specify a maximum withholding tax rate, or the maximum rate specified in a treaty is higher than the domestic withholding tax rate, the domestic rate applies.

Interest and Royalties Rates under India’s DTAAs

Partner Interest Royalties Partner Interest Royalties Partner Interest Royalties Country (%) (%) Country (%) (%) Country (%) (%) Armenia 10 10 Jordan 10 10 Russia 10 10 Australia 15 10 Kazakhstan 10 10 Saudi Arabia 10 10 Austria 10 10 Kenya 15 10 Serbia 10 10 Azerbaijan 15 10 Korea (R.O.K.) 10/15 10 Singapore 10/15 10 Bangladesh 10 10 Kuwait 10 10 Slovakia 15 10 Belarus 10 10 Kyrgyzstan 10 10 Slovenia 10 10 Belgium 10/15 10 Libya - - South Africa 10 10 Botswana 10 10 Luxembourg 10 10 Spain 15 10 Brazil 15 10 Malaysia 10 10 Sri Lanka 10 10 Bulgaria 15 10 Malta 10 10 Sudan 10 10 Canada 15 10 Mauritius - 10 Sweden 10 10 China 10 10 Mexico 10 10 Switzerland 0/10 10 Cyprus 10 10 Moldova 15 10 Syria 10 10 Czech Republic 10 10 Mongolia 15 10 Taiwan 10 10 Denmark 10/15 10 Montenegro 10 10 Tajikistan 10 10 Egypt - - Morocco 10 10 Tanzania 10 10 Faroe Islands 10/15 10 Mozambique 10 10 Thailand 10/20 10 Finland 10 10 Myanmar 10 10 Trinidad & Tobago 10 10 France 10 10 Namibia 10 10 Turkey 10/15 10 Georgia 10 10 Nepal 10/15 10 Turkmenistan 10 10 Germany 10 10 Netherlands 10 10 Uganda 10 10 Greece - - New Zealand 10 10 Ukraine 10 10 Hungary 10 10 Norway 10 10 U.A.E. 5/12.5 10 Iceland 10 10 Oman 10 10 U.K. 10/15 10 Indonesia 10 10 Philippines 10/15 10 U.S. 10/15 10 Ireland 10 10 Poland 15 10 Uzbekistan 15 10 Israel 10 10 Portugal 10 10 Vietnam 10 10 Italy 15 10 Qatar 10 10 Zambia 10 10 Japan 10 10 Romania 15 10

Page 11 Q&A: With which countries does India have pending tax treaties?

6 - INDIA BRIEFING | 2013 Individual Income Tax Rates and Deductions

ndividual income tax (IIT) is the direct tax paid on personal income by an individual or a company to the central government. The Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance. In this article, we discuss income source and residency, income tax payment, the definition of salary, Iincome tax rates and tax deductions at source. Income Source and Residency Personal taxation in India depends on the income source and a person’s residential status, which is determined by the length of time spent in India. Residential statuses include: resident and ordinarily resident (ROR), resident but not ordinarily resident (RNOR) or non-resident (NR).

Income Tax Act Residency Definitions

Under the Income Tax Act, an individual (non-Indian citizen or non-resident Indian) is said to be resident in India in any previous year, if he:

• is in India in that year for a period or periods amounting in all to 182 days or more; or • having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year.

A person is said to be “not ordinarily resident” in India in any previous year if such person is an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, 729 days or less.

Salary income is liable for personal income tax in India if the services are rendered in India, regardless of where the salary is received. RORs are also taxed on other types of income worldwide, while RNORs and NRs are only taxed on other income when that income is received or accrues/arises in India.

Income Tax Payment According to the Income Tax Act, it is the obligation of the employer to withhold personal income taxes from the salary paid to an employee, and deposit these taxes with the Indian revenue authorities. This applies to Indian employers and foreign employers, for domestic and expatriate staff. Personal income tax is governed by the Central Board for Direct Taxes (CBDT), part of the Department of Revenue under the Ministry of Finance.

A Permanent Account Number (PAN) is a 10-digit alphanumeric code, printed on an identification card, for the reference of the Income Tax Department. Companies are required to obtain a PAN during the establishment process in order to file an income tax return, to manage any correspondence with the Income Tax Department, and to submit challans for tax payment.

Definition of Salary Salary is defined by the Income Tax Act to include wages; pensions and annuities; gratuities; advance of salary; any fee, commission, perquisites (e.g. the value of rent on accommodation provided by the employer) or profits in lieu of or in addition to salary or wages; any encashment of leave salary; or any amount of credit to the provident fund of an employee to the extent that it is taxable.

Salary also generally includes what is known as a “dearness allowance;” a type of allowance provided for the higher cost of living in particular cities or states. While this allowance is most important for government employees, certain private companies also offer it at their own discretion.

2013 | INDIA BRIEFING - 7 Individual Income Tax Rates and Deductions

For income to be treated as salary, the following conditions must be fulfilled:

• There must be an employer-employee relationship between the payer and receiver of income; • Salary income must be real and there must an intention to pay and receive salary; and • Salary may be from more than one employer and may be received not just from the present employer but also from a prospective employer and in some cases even from a former employer, as is sometimes the case for pensions.

Salary can be charged in the year received or in the year earned, whichever is earlier, i.e. if the salary has been received first, then it will be taxable in the year of receipt.

Allowances are categories of expenditures in India that are not taxable, provided they match certain specifications and do not exceed a certain amount. They are given, among other things, for house rent, transport, medical care, meal coupons, leave-time travel and education. Other taxes that may apply to an individual include capital gains tax and wealth tax.

Income Tax Rates Individual Income Tax Rates 2013-2014 Assessment Rate General Women Senior citizen Individuals above the age of 80 years 2013-14 Nil 0 to 200,000 No separate slab 0 to 250,000 Up to 500,000 10% 200,001 to 500,000 250,001 to 500,000 20% 500,001 to 1,000,000 500,001 to 1,000,000 500,001 to 1,000,000 30% Above 1,000,000 Above 1,000,000 Above 1,000,000 2012-13 Nil 0 to 180,000 0 to 190,000 0 to 250,000 Up to 500,000 10% 180,001 to 500,000 10,001 to 500,000 250,001 to 500,000 20% 500,001 to 800,000 500,001 to 800,000 500,001 to 800,000 500,001 to 800,000 30% Above 800,000 Above 800,000 Above 800,000 Above 800,000

Tax Deductions at Source

A tax deduction is a changeable amount that can be subtracted, or deducted, from assessee’s gross income, Selected Tax Deductions at Source 2012-13 lowering the amount of tax paid. All entities in India Act Nature of payment Cut-off Amount Rate* (including foreign representative offices and Indian setups 194 C 1 Contracts INR30,000 2 like wholly owned subsidiaries) are required to make tax 194 C2 Sub-contracts/Advertisements INR30,000 2 deductions at source on employees’ salaries on behalf of 194 D Insurance Commission INR20,000 10 the Income Tax Department. 194 I Rent (land & building) INR180,000 10 The payment and compliance schedule is as follows: 194 I Rent (P & M, Equipment, furniture INR180,000 2 & fittings) • Payment 194 J Professional/Technical charges/ INR30,000 10 7th of the next month; Royalty and Non-compete fees April 30 for the month of March 194 LA Compensation on acquisition of INR200,000 10 • Quarterly returns immovable property 15th of the next month from the end of the quarter *Non-Hindu family business • Issue of Certificate 30th of the next month; for salaried certificates, by May 30

? For advice on tax in India, please email [email protected] or visit Dezan Shira & Associates at www.dezshira.com.

8 - INDIA BRIEFING | 2013 A Look at India’s Coming Tax Reforms in 2013

s an investment destination, contemporary India has relatively high tax rates. Corporate Income Tax rates are 30-40 percent, while on top of this Value-added Tax (VAT) is 12.5 percent and Dividends Taxes run to 15 percent. Individual Income Taxes are staggered depending upon the amount earned, but reach a high of 30 percent. We can directly compare these with China Aas follows: Major Headline Tax Rates: China vs. India CIT VAT* Dividends** IIT*** China 25% 17% 10% 45% India 30-40% 12.5% 16.22% 30% *Varies by industry and geographically **Not including rates given under tax treaties ***Highest rate

The Indian Government is well aware of the need to create a more favorable environment for foreign investment into the country, and has tabled a measure of reforms to be introduced. Most of these reforms, if passed, would significantly decrease India’s tax threshold, and if passed, would spur an investment boom into the country. After all, no one wants to pay high levels of tax, including India’s politicians.

Tied up with the tax reform program is a re-evaluation of VAT and Goods and Services Tax, which are partially collected by the Central Government and partially by each State. Disagreements between these two levels of government over who collects what have delayed the reforms that were first tabled seven years ago. To shed further light on the tax reform situation, we are pleased to present a piece by Bloomberg View’s India correspondent, Chandrahas Choudhury.

Can India Tax Itself to Prosperity?

ndia’s central and state governments are edging closer to an of the new system has been held up on many fronts: disputes over agreement on a design and deadline for the Goods and Services its precise shape, resistance on the part of some state governments Tax, a comprehensive value-added tax that will replace many because they fear a loss of revenue from the levy of state taxes, smaller taxes and levies and will make India a unified market. the need to amend the Constitution (which has a different view The proposed tax reform has been described as having the of taxation powers divided between the central government and potentialI “to be the single most important initiative in the fiscal the state than the one the GST envisages), and the absence of any history of India.” concerted pressure from the citizenry. Tax reform is a subject less conducive to strong feelings than, say, the proposed anti-corruption Long in the pipeline, the Goods and Services Tax has been on the bill that has generated so much sound and fury in India. to-do list of the current government, the UPA, since it came to power in 2004. Finance Minister P. Chidambaram laid out the need for the But not only would the implementation of the Goods and Services switch in 2006, saying in his budget speech that year: Tax increase government revenue, it would have a tonic effect on the battle against corruption, too, by simplifying a byzantine tax It is my sense that there is a large consensus that the country should system and encouraging what economists call “virtuous growth.” move towards a national level Goods and Services Tax that should be shared between the Centre and States. I propose that we set A strong case for the GST was made recently in Tehelka by Jaitirth April 1, 2010 as the date of introducing GST. World over, goods and Rao, who pointed out that the current system of multistage taxes services attract the same rate of tax. This is the foundation of a GST. on the manufacture and sale of goods and services in India often has a cascading effect, and unfairly penalizes tax compliance and But that date has come and gone without the impasse over the GST rewards evasion. This system could be rationalized by a sophisticated being solved, and so have further deadlines. The implementation last-point retail tax like the GST.

2013 | INDIA BRIEFING - 9 India’s Tax Reforms in 2013

Rao also argued that interstate taxes have created barriers to trade that are holding back the prosperity potentially available to a vast Many of the authors of op-eds or country that works as a unified market, and pointed to the contrast between the U.S. and the smaller economies of South America as academic papers on the subject an example: of the GST have quoted from the ancient Indian thinker Kautilya’s The US is one large market for goods, services, capital and labor. The countries of Central and South America are all relatively ‘small’ text on statecraft, the Arthashastra, markets and they all have barriers to trade and investment in small or and especially his observation that large measure. Just imagine if there had been trade barriers between New York and New Jersey or between Pennsylvania and Virginia. That “all undertakings [of the state] are is how Latin America is organized. The existence of a large market dependent first on the treasury.” without trade barriers has been perhaps the single most important reason for the economic success of the US.

From the government of India side, Central excise, additional excise The structure of sales tax in India has a built-in inflationary bias also. duties, service tax, Additional Customs duty (CVD), and all cesses There are repeated instances of double or triple taxation as raw and surcharges (other than educational cess) will be subsumed materials are turned into intermediate goods and then into final into the Central GST. consumer goods. In any intelligently designed indirect tax system anywhere in the world, cascading of taxes and the consequent price Kelkar has also suggested that GST implementation would increase escalation is avoided by allowing each seller to take into account India’s gross domestic product by 1 percent (this contention is the taxes he/she has paid while buying the inputs and “offsetting” supported in a working paper by the economists Ehtisham Ahmed the taxes paid earlier in the supply chain. But given that the taxes and Satya Poddar), bring down real-estate prices and make Indian are levied by different states, this has not been possible in India. manufacturing more competitive in the global market.

For so long now, we have known that the multiple state sales tax Many of the authors of op-eds or academic papers on the subject of process is bad news. It makes us poorer as a country; it is inefficient the GST have quoted from the ancient Indian thinker Kautilya’s text and inflationary; it encourages criminal activity as people take on statecraft, the Arthashastra, and especially his observation that recourse to smuggling rather than legitimate inter-state trade; “all undertakings [of the state] are dependent first on the treasury.” it reduces state revenue in more ways than one and it penalizes honest citizens. Currently the treasury of India, a country that is home to more than a sixth of the world’s population, is messily and inefficiently run, Our large population and large market are strategic assets for India. both on the side of personal income-tax -- India currently has a They can be a source of competitive advantage. We are in danger tiny base of no more than 35 million taxpayers -- and on the side of of frittering this advantage away by perpetuating the existence of taxes on manufacturing and supply. P. Chidambaram, the country’s “mini markets” and internal tariffs. finance minister, and the finance ministers of India’s states now have a chance to push through a foundational reform, one that would In a recent address to the Indian business confederation ASSOCHAM, impact the economic life of every Indian citizen, over the next three the economist Vijay Kelkar, chairman of a government-appointed months after the GST plan is vetted and refined by two committees. committee that produced a 2009 report on GST, pointed out the inefficiency of a tax system that required a freight truck travelling by This piece was first published on Bloomberg View on Nov 13, 2012. road between Delhi and Chennai “to cross five state borders and 10 Chandrahas Choudhury is an Indian novelist and a regular contributor checkposts.” He gave a sense of the thicket of taxes that would be to Bloomberg View. swept out in one go by the implementation of the proposed dual- GST model, one designed to ensure that the central government For assistance with taxes in India, including tax planning, compliance and the states received equal shares of revenue from the tax: and advisory, please contact Dezan Shira & Associates by emailing [email protected] or visiting www.dezshira.com. Apart from VAT, stamp duty, vehicle tax, taxes on goods and passengers, taxes and duties on electricity, entertainment tax, entry tax, luxury tax, taxes on lotteries, betting and gambling, purchase tax as well as all State cesses and surcharges will be subsumed into the State GST. Central Sales tax will stand abolished.

10 - INDIA BRIEFING | 2013 Further Resources Q & A

With which countries does India have pending tax treaties?

In 2013, a number of new tax treaties will come into force for India, including agreements with Estonia, Lithuania, and Nepal. Several tax treaties are still pending, including the protocol to the existing treaty with the United Kingdom that was signed in October 2012, but has yet to come into force. This protocol altered the provisions relating to information exchange, and further enables tax authorities to exchange banking information irrespective of domestic interests.

Pending Tax Treaties Dates Tax Rate Estonia The 2011 treaty entered into force June 20, 2012 and will apply in India from 10% on interest and royalties April 1, 2013 (January 1, 2013 in Estonia). Ethiopia A tax treaty was signed on May 25, 2011, but is not yet in force. 10% on interest, royalties, technical services fees Lithuania A tax treaty entered into force July 10, 2012 and will apply in India from April 1, 10% on interest, royalties, 2013 (January 1, 2013 in Lithuania). technical services fees Malaysia India and Malaysia signed a tax treaty on May 9, 2012 that will replace the 10% on interest and royalties existing treaty, but the new treaty is not yet in force. Nepal The 2011 treaty between India and Nepal entered into force on March 16, 2012 10% on interest and 15% and applies in India as from April 1, 2013 (July 16, 2013 in Nepal), replacing the on royalties (lower 10% current treaty. domestic rate applies) United India and the U.K. signed a protocol to the existing tax treaty on October 30, No changes are made to the Kingdom 2012, but the protocol is not yet in force. withholding tax on interest or royalties Uruguay India and Uruguay signed a tax treaty on September 8, 2011, but it is not yet in 10% on interest and royalties force.

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