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Doing Business in India 2012 - Taxes – direct and indirect - EY - India

Doing Business in India 2012

Taxes – direct and indirect

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Non-resident corporations must file an ROI in India if they earn income in India, or they have a physical presence/economic nexus in India.

India has a well-developed tax structure and the authority to levy taxes is divided between the Central and state governments. This section summarizes various direct and indirect taxes levied in India.

Direct tax


Administration, supervision and control in the area of direct taxes lie with the Central Board of Direct Taxes (CBDT). The CBDT works under the MoF, exercises significant influence over the working of the country’s direct tax laws and also ensures effective discharge of executive and administrative functions.

The Indian tax year extends from 1 April of a year to 31 March of the subsequent year. A corporation tax year also ends on the same date. All corporations (except those who are required to submit transfer pricing certificate in Form 3CEB in respect of international transactions) are required to file a return of income (ROI) by 30 September, even in the event of loss. However, corporations who are required to submit transfer pricing certificate in Form 3CEB in respect of international transactions are required to file an ROI by 30 November. Non-resident corporations must file an ROI in India if they earn income in India, or they have a physical presence/economic nexus in India.

Corporate tax liability needs to be estimated and discharged by way of advance tax in four installments on 15 June, 15 September, 15 December and 15 March, every year.

Late filing of ROI and delay in payment/shortfall in taxes are liable to attract penal interest at prescribed rates. Interest is generally imposed on the balance of the unpaid tax due and on underpayment of the advance tax due.

Indirect taxes


Customs duty: This duty is levied by the Government of India on import of goods into India and is typically payable by the importer of goods. It is also levied on export of certain goods.

The duty rates depend on the classification under the Customs Tariff, which is aligned with the International Harmonized System of Nomenclature —generic rate being 28.85%.

Customs duty generally comprises the following components:

  • Basic Customs Duty (BCD)
  • Additional Customs Duty (CVD) —in lieu of excise duty
  • Education cess/Secondary and Higher education cess
  • Special Additional Customs Duty (SAD)

Excise duty: Excise duty is applicable on the manufacture of goods within India and is payable by the manufacturer.

Most products attract a uniform rate of 12% plus education cess at 3% of the excise duty, making the effective excise duty at 12.36%, i.e., excise duty of 12% and education cess of 0.36% (3% on excise duty).

Service tax: Service tax is applicable on the provision of services in India. It is also applicable on import of services in India where service recipient is required to discharge service tax liability in cash (under reverse charge mechanism). The present rate of service tax is 12.36% i.e. 12% service tax and education cess of 0.36% (3% on service tax).

VAT/CST: Value added tax (VAT) is an intra-state multi-point tax system administered at the state level and is levied on sale of goods at each stage of sale. Currently, all the states in India have replaced their erstwhile sales tax regime with VAT.

Interstate sales continue to be liable to Central Sales Tax (CST), which is imposed by the Government of India and administered by state governments. The rate of CST is 2%, subject to provision of prescribed declaration form by the purchaser.

Octroi/Entry tax: Entry tax/Octroi is levied by state/local authorities on the entry of goods within its jurisdiction, for use, consumption or sale on the purchase value of the goods. For this purpose, the state is divided into different local areas. The value of the entry tax levied on different products can vary from state to state.

Research and Development Cess: The Research and Development Cess is levied by the Government of India at 5% on import of technology by an industrial concern into India in terms of a foreign collaboration or other specified cases. This cess is required to be paid by the importer of technology on payments made for such imports.

Other significant indirect taxes: They include the following.

  • Stamp duty
  • Profession tax
  • STT
  • Luxury tax
  • Property tax
  • Entertainment tax

Goods and Services Tax legislation (GST): The Government of India has proposed that the indirect tax regime in India be replaced by a comprehensive dual GST, to be levied concurrently by the Centre (CGST) and the states (SGST).

The following are the key taxes proposed to be subsumed under the GST:
 

Central taxes State taxes
  • Central Excise Duty (including additional excise duties)
  • Service tax
  • Additional customs duty
  • Special additional customs duty
  • Surcharges and cesses
  • CST
  • VAT/sales tax
  • Entry tax not in lieu of Octroi
  • Entertainment tax (other than entertainment tax levied by local bodies)
  • Stamp duty
  • Taxes on Vehicles
  • Taxes on Goods and Passengers
  • Taxes and duties on electricity
  • Luxury tax
  • State cesses and surcharges
  • Taxes on lottery, betting and gambling


The following are the key taxes not to be subsumed under the proposed GST:

 

Central taxes State taxes
  • Customs and export duties
  • Duties of excise on specified petroleum products, natural gas and tobacco.
  • Excise duty on alcohol

 


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  • Pooja Walke  
    Manager - Markets, Tax & Regulatory Services
    Tel: +022 61921384
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