SHANKARLAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS

Doing Business in A Presentation by Mr. SatishJain SHANKARLAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS 12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI – 400 002.INDIA.

Doing Business in India CONTENTS • INDIA at a Glance • Basic Economic Data • Basic Foreign Direct Investment Data • Direct Tax • Residential Status • Scope of Tax • Tax Rates • Capital Gains • Deduction / Exemption Available • Withholding Tax • Double Tax Avoidance Agreement • Transfer Pricing • Recent Pronouncements • With regard to Foreign Taxation Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India CONTENTS (Cont…) • Indirect Tax • Service Tax • Cross Border Transaction • Value Added Tax • Excise Duty • Foreign Direct Investment • Sectoral CAP of Foreign Direct Investment • Conclusion Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • INDIA AT A GLANCE • India is a Union of States with parliamentary system of Government • Land area:3.29 million square kilometers • Capital: New Delhi • Population: 1.21 Billion (2011) • Climate: mainly tropical with temperature ranging from 10 – 40 Celcius in most parts • Time Zone: GMT + 5 1/2 hours • Major International Airports:New Delhi, Mumbai , Chennai , Kolkata ,Bangalore , Hyderabad, Thiruvananthapuram • Major Ports of Entry:Chennai, Ennore, Haldia, Jawaharlal Nehru, Kolkata , Kandla , Kochi, Mormugao, Mumbai, New Mangalore, Paradip and Tuticorin, Vizag Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • INDIA AT A GLANCE (Cont..) • India’s per capita income is US$ 1549.9in 2011-12, at current prices, which is higher by 26.68% from the per capita income in 2010-11. • India can boast of remarkably strong manpower resources with one of the most developed higher education systems across the globe. • India’s size of education system ranks third in the world, after US and China. • The literacy rate in India is 74% in 2011, with English being understood and used commonly as a medium of spoken and written communication. DEVELOPMENT FOR ALL…. Shankarlal Jain & AssociatesChartered Accountants

Young, Optimistic, Happy Generation Doing Business in India • INDIA AT A GLANCE (Cont..) Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • BASIC ECONOMIC STATISTICS • GDP at current prices(2011-12): US$ 1,859.9 billion • GDP (PPP) 2011: US$ 4,463 billion • GDP Growth Rate 2012:6.5% • Exchange rate (as on 31ST March, 2012):Rs.51.15/ $ • Foreign Exchange Reserves (March 2012): US$ 294.4 billion • Exports 2011-12: US $ 303.7 billion, Growth Rate: 21% • Imports 2011-12: US $ 488.6 billion, Growth Rate: 32.1% Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • BASIC ECONOMIC STATISTICS (Cont…) • Finance and Market • During Financial Year 2011-12 (upto 30th December,2011) • Decline in resource mobilization on account of weak Global economic scenario. • The decreasing trend of primary market was also observed in the secondary market, the indices of India decreased by 20.7% from the previous closing of 2011. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India BASIC ECONOMIC STATISTICS (Cont…) Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India BASIC FOREIGN DIRECT INVESTMENT STATISTICS • Foreign Direct Investment 2011-12: US $ 46.8 billion, • Growth Rate:34% • India is the fourth destination country for FDI in terms of projects. • India remained very attractive for FDI in 2011. FDI projects increased by 20% in India in 2011, attracting 932 projects, which created an estimated 255,416 jobs. • This is despite a global economic growth that had not fully recovered from the financial crisis of 2008–09 and has begun to slow again, from over 5% in 2010 down to a projected 3.3% through 2012. • In terms of FDI value, India ranked third, behind China (first) and Brazil (second) and ahead of the US and UK. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…) • Top Five Recipient Countries by Number of Projects • Top five cities in India attract 42% of the investment projects, 36% of the jobs created by FDI and 28% of the value of FDI in India. • Bangalore • Mumbai • Chennai • New Delhi • Pune Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • BASIC FOREIGN DIRECT INVESTMENT STATISTICS (cont…) • FDI by Sector : Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India FINANCIAL YEAR • Is 1ST APRIL TO 31ST MARCH of each year. STATUS OF TAXABLE ENTITY • Resident of India • a. An individual who has been in India for a period amounting to 182 days or more or • Within four preceding years have been in India for a period or periods amounting to 365 days or more and for a period of 60 days during the year. • A Company is Resident in India in any Previous Year if • Indian company or • During the year Control and Management of its affairs is situated wholly in India. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • Every other person, is said to be a resident in India in the previous year except where during that year Control and Management of its affairs is situated wholly outside India. • Not an Ordinary Resident (NOR) • A person is said to be not an 'Ordinary Resident'in India in any previous year if such person is an individual who has not been a resident in India in nine out of ten previous years preceding to that year or has during the 7 previous years preceding to that year been in India for a period of 729 days or less. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India SCOPE OF TAXABLE INCOME • RESIDENT • All income as received or deemed to be received in India during the Financial Year. • Income accrues or arising or deemed to be accrued or arisen in India during such a year. • Accrue or arising to him outside India during such year. • NON RESIDENT a. All income as received or deemed to be received in India in such year or • Accrued or arisen or deemed to accrue or arise in India during the year. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India TAXATION • CORPORATE TAXES • Domestic Company • Foreign Company Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • LLPs & Firm • Taxes are payable at 30.9%. • PERSONAL TAXES • NO STATE TAX IS PAYABLE SEPARATELY Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India CAPITAL GAINS Rate of Capital Gain is 15.45% *Rate of Capital Gain is NIL% ** Rate of Capital Gain is 20.60 % with indexation Rate of Capital Gain is 30.90% Rate of Capital Gain is 30.90% Rate of Capital Gain is 20.60% with indexation *If Securities Transaction Tax paid **In Case of Non Resident at 10.30% without indexation Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India DIVIDEND DISTRIBUTION TAX • A company distributing divided is liable to pay tax @ 15.75% thereon on dividend distributed. LOSSES • Business losses are allowed to be carried forward for a period of 8 years and unabsorbed depreciation is carried forward for unlimited period. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • MINIMUM ALTERNATE TAX (MAT) • If tax payable under normal provision of Income Tax Act is less than 18.5% of the book profit as disclosed by audited accounts MAT Tax will be payable. • MAT credit will be available for 10 Assessment Years immediately succeeding the assessment year. • ALTERNATE MINIMUM TAX (AMT) • In case of non-corporate assessees such as LLPs, Partnership firms, individuals, Association of persons, • It is provided that tax payable will not be lower than 18.5% of the ‘Adjusted Total Income'. • A tax credit for Alternate Minimum Tax is available for a period of 10 years. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India TAX EXEMPTION / INCENTIVES Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India Note: Capital subsidy and VAT subsidy by States are given for setting up of industrial units in the respective states by allowing capital subsidy on capital cost of unit and also allowing exemption from payment of VAT or other incentives. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India WITHHOLDING TAX • Note: In case a Non-resident does not have an Indian PAN, the tax deductable will not be less than @20.60% Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India DOUBLE TAX AVOIDANCE AGREEMENT • India is having DTA with 82 major economies of the world. • The Provision of Indian Income Tax Act or provision of DTA whichever is more favorable will be used for calculation of tax liability. • For availing benefit of DTA a Non-resident has to submit a Tax Residency Certificate. • In case where there is no DTA, if an income is taxed in India as well as in a foreign country credit be allowed for taxes paid in foreign country, not being higher to tax payable in India. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India TRANSFER PRICING AND ADVANCE PRICING AGREEMENT • Transfer Pricing provisions are applicable: • To International transaction with associated enterprises • Transfer price is to be computed on the basis of one or more methods prescribed for determining terms of pricing: • Comparable Uncontrolled Price (CUP) • Resale price method • Cost plus method • Profit split method • Transactional Net Margin Method (TNMM) or • any other method as may be prescribed • Advance pricing agreements • Methodology of arm's length price be determined. • Bilateral or Multilateral agreement. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India GENERAL ANTI AVOIDANCE RULES • Introduced by Finance Bill 2012 but deferred till 2014. • Inpermissible Avoidance arrangements be derecognized. • Inpermissible Avoidance arrangements shall be: • Arrangement to obtain tax benefit which has no commercial substance. • Arrangements create rights or obligations which cannot be normally created between persons dealing at arm's length • Arrangements which misuses legal provisions • Necessary safeguards provided. General Anti Avoidance Rules are postponed for time being and a high power expert committee is being appointed to determine the scope and applicability of the avoidance rules and methodology of such application. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India RECENT PRONOUNCEMENTS WITH REGARD TO FOREIGN TAXATION • Indirect Transfer of Indian Securities • Any capital asset being share or any other interest in a company or an entity registered or incorporated outside India shall be deemed to be situated in India, if share of such foreign entity derives directly or indirectly its substantial value from the assets • located in India. [The provisions were incorporated by Finance Bill 2012 with retrospective effect from 01/04/1962]. • In case a foreign entity derives its value substantially from assets located in India by way of shares or otherwise, any transfer of foreign entity shares will have an effect of transfer of Indian securities and will be liable for capital gain. By amendment to withholding tax provisions it has been provided that such foreign entities being transferor will be liable for tax withholding on such capital gain arising on such transfer. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • ROYALTY PAYABLE ON • COMPUTER SOFTWARE • Amended with effect from 01/06/1976. • It includes: • any rights to use, a computer software including granting of license, any disc, tape, perforated media or any other information, storage device or any customized electronic data. • TRANSMISSION BY SATELLITE • Amended with effect from 01/06/1976. • It includes: • transmission by satellite including up linking amplification, conversion for down linking of any signal, cable, optic fiber by any other similar technology. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India SERVICE TAX • Rate:12.36% on value of all taxable services. • Taxable Service: All services other than those specified in the negative list provided in the taxable territory by any person to another. • Servicemeans any activity for consideration (including non-monetary). • Taxable Territory: Service Tax is applicable to the whole of India except state of Jammu & Kashmir. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India NEGATIVE LIST OF SERVICE (EFFECTIVE FROM 01/07/2012) • There are 17 services which have been specified in the negative list, mainly are: • Services provided by Government or Government Agencies • Agriculture • Trading of goods • Process amount to manufacture or production of goods • Selling of time slot for advertisement • Educational • 34 specified services are also exempted from services • Point of Taxation • Value of taxable service in case of reverse charge • CENVAT Credit on Capital Goods • Interest on delayed payment @18% Per Annum Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India CROSS BORDER TRANSACTION • As regards Cross Border Transaction, to determine the place of provision of services the Law has introduced concept of Import of services & Export of services. • Import of Services • Any taxable service providing to any entity in India will be payable by the Indian entity utilizing such services. • Export of Services • Any taxable service providing by an Indian entity no Service Tax will be payable provided payment is received by an Indian entity in foreign exchange. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India VALUE ADDED TAX ACT (VAT) • Value added tax (VAT) is a consumption tax (CT) levied on any value that is added to a product. • A VAT is a state subject in India and is levied differently by each state. • Maharashtra VAT (MVAT) laid down as under : • MAHARASHTRA VALUE ADDED TAX ACT (MVAT) • Liable to pay tax on the basis of turnover of sales within the state. It includes: • all persons who buys or sells goods for commission, remuneration or otherwise. • Does not includes: Agriculturist, Educational Institutions and Transporters. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India • MVAT (Cont…) • Turnover limit for the purpose of VAT liability are as under: • Importer - Rs.100,000/- • Others - Rs.500,000/- • Rate of VAT: Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India FILING OF RETURN • Every Registered dealer is required to file return. • Input Tax Credit (ITC) is also available on purchase of raw materials, finished goods, packing materials and also available on capital goods. AUDIT OF ACCOUNTS • Liable to get its accounts audited if turnover exceeds to Rs 6 million. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India CENTRAL EXCISE DUTY • All excisable goods which are produced or manufactured in India and the rates mentioned in first schedule of Excise Tariff Act,1985. VALUATION OF GOODS MANUFACTURED • Transaction value. • Assessable value. • Certain specified goods are valued with reference to MRP. • CENVAT credit on raw material and capital goods are also available. Shankarlal Jain & AssociatesChartered Accountants

Shankarlal Jain & AssociatesChartered Accountants Doing Business in India FOREIGN DRIECT INVESTMENT ROUTE IN INDIA

Doing Business in India SECTORAL CAP OF FOREIGN DIRECT INVESTMENT • FDI is prohibited in • Lottery business • Gambling & Betting • Chit Funds. • Nidhi Company. • Trading in transferable development rights. • Real estate business or construction of farm house. • Manufacturing of cigar, cigarettes or tobacco or its substitutes. • Activities/sectors not opened to private investment, i.e. atomic energy, railway transport, other than mass rapid transport system. Shankarlal Jain & AssociatesChartered Accountants

Doing Business in India CONCLUSION • PROS • Big Market • Growing Per Capita Income • Increasing Middle Class Population • Tax Rate competitive with other economies • High Rate of Literacy & Computer Knowledge • CONS • Lack of Infrastructure (can be looked both ways) • Bureaucracy • Political uncertainty • Fiscal Deficit Shankarlal Jain & AssociatesChartered Accountants

SHANKARLAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS