Accounting and tax
- Recently, India implemented a comprehensive goods and services tax (GST) regime, applicable at both central level and the state level. Consequently, the average VAT rate in India is now 18%, with the rates varying between 0% and 28%;
- In India, domestic companies are taxed at 31%. However, if the annual income exceeds US$161,000 (INR 10,000,000), the tax rate increases to 32% and if the annual income exceeds US$1,610,000 (INR 100,000,000), the tax rate increases to 34%;
- Branch companies will be taxed at 40%. However, if the annual income exceeds US$161,000 (INR 10,000,000), the tax rate increases to 42% and if the annual income exceeds US$1,610,000 (INR 100,000,000), the tax rate increases to 43%;
- Dividends paid by a domestic company are subject to the dividend distribution tax (DDT), which it is effectively 21%. Dividends received by a domestic company from a foreign company will be taxed at 40%. However, if a domestic firm owns 26% stake in the foreign firm, the tax rate is reduced to 15%;
- Interest payments and royalty payments to non-resident entities will be subject to a withholding tax of 20% and 25% respectively.
- Companies will be subject to a minimum alternate tax (MAT) at 18.5% if their current tax liability on total corporate profits is currently less than 18.5%;
- Import and export duties are charged at a general rate of 10%;
- Central excise duty by the federal government is levied at 12.5%;
- A wealth tax of 1% applies to individuals who own assets which are not being used for business purposes including precious metals, cars and yachts worth US$48,300 (INR 3,000,000).
Tax reporting, audit and other considerations
- Resident companies must file their tax returns before 30th September every year. Filing of consolidated tax returns is not permitted under Indian tax law;
- Within 30 days from Indian company formation, our Clients will be required to appoint an auditor;
- India has signed Double Taxation Agreements (DTA) with 90 countries like Australia, China, Japan, Malaysia, Singapore and USA to reduce withholding tax on payments abroad;
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
Legal and compliance
- An Indian business setup must have atleast 2 directors and 2 shareholders. While all shareholders can be foreigners, at least 1 director must be an Indian resident;
- India company formation regulations require our Clients to deposit US$1,650 (INR 100,000) as the minimum share capital for a private company. For a public company, the minimum capital required will be US$8,060 (INR 500,000);
- If the share capital of the company exceeds US$811,600 (INR 50,000,000), a resident company secretary must be appointed;
- Before an individual can be appointed as the director of the company, he/she must apply for a DIN (Director Identification Number). Also, at least 1 director must have a digital signature;
- Before incorporating a branch office or a liaison office, prior approval from the Reserve Bank of India (RBI) is mandatory. Furthermore, parent companies will need to submit their latest audited balance sheets showing assets worth at least US$100,000 (in case of branch office) and at least US$50,000 (in case of liaison office);
- Every listed company in India must have at least 1/3rd of its directors as independent directors.
Reporting and other compliances
- All resident companies must file audited annual financial statements with the Registrar of Companies (ROC). Listed companies will, additionally, submit their statements to the Securities and Exchange Board of India (SEBI) and the Stock Exchange;
- Companies are also required to file their withholding tax returns quarterly and their service tax returns half-yearly (only applicable for service providers);
- Every company with annual revenue of at least US$40,600 (INR 2,500,000) must submit its tax returns for a mandatory tax audit;
- Branch offices and liaison offices are required to file an Annual Activity Certificate every year with the RBI;
- Every Indian company must hold at least 1 board meeting every quarter i.e. at least 4 board meetings in one calendar year. It is also mandatory to hold an Annual General Meeting (AGM) within 6 months of the close of the accounting year i.e. before the 30th of September;
- All corporate entities must obtain prior approval from the ROC, the RBI and the Income tax authorities before they can wind up their operations.
- The maximum weekly working hours are fixed at 48 hours with a maximum of 9 hours a day. If employees work overtime, then they must be paid twice their current wage;
- Women workers can only be employed between 6AM and 7PM. Companies can request the respective state governments for exemptions but women still cannot be employed between 10PM and 5AM;
- Workers are entitled to 1 day of paid leave for every 20 days worked, provided they have worked for at least 240 days in the previous year;
- All companies with at least 20 employees must pay bonuses to employees earning a monthly wage up to US$160. The bonus paid will between 8% and 20% of the annual salary of the employee;
- All employers must contribute 12% of their employee’s wages to the latter’s pension fund and provident fund. Factories which employ at least 10 workers must also contribute an amount equivalent to 5% of their employee’s wage for the latter’s health insurance.