Revenue accruing to foreign companies
(including royalty and technical services fees) from
providing services concerning the exploration or production
of petroleum or natural gas is subject to a maximum tax on a
deemed profit of 10% of gross revenue.
Foreign companies engaged in the execution of turnkey power
project contracts approved by the government and financed by
international programs are subject to a maximum tax on a
deemed profit of 10% of gross revenue.
The corporate income tax effective rate for domestic
companies is __% while the profits of branches in India of
foreign companies are taxed at 45%. Companies incorporated
in India even with 100% foreign ownership, are considered
domestic companies under the Indian laws.
Non-Export Incentives
India offers a wide range of concessions
to investors to provide incentives for economic and
industrial growth and development. India's tax rates may not
be one of the lowest in the world, but a careful tax
planning keeping in mind the tax holidays and the following
general tax incentives reduce the taxes considerably:
No corporate taxes are levied for a period of five years for
projects set up for domestic power generation and
transmission and also for projects in Electric Hardware
Technology Park Schemes.
Deduction of preliminary and preoperative expenses incurred
in setting up a project
Complete tax exemption on profits from exports of goods
Full or partial exemption of foreign exchange earnings on
construction projects, hotel and tourism related services,
royalties, commission, etc.
Liberal depreciation allowances
Deduction of capital research and development expenditures
New industrial undertakings may deduct 25% of their gross
total income for eight years
Tax Incentives for Exporters
The New Export-Import Policy of 1992 provides substantial
tax incentives for investments in Export Oriented Units ("EOU's")
and industries located in the Export Processing Zones ("EPZ's").
Automatic approvals are given by the Secretariat for
Industrial Approval for setting up 100% Export Oriented
Units ("EOU"). Incentives and facilities available under the
EOU scheme include concessional rent for lease of industrial
plots, preferential power allocation and supply, exemption
from import duty for capital goods and raw materials for
power sector industries as well as for trading companies
primarily engaged in export activity.
There are six EPZ's or free trade zones located in different
parts of the country. These zones are designed to provide
internationally competitive infrastructure facilities and
duty-free and low cost environment. Various monetary and
non-monetary incentives are granted which include import
duty exemption, complete tax holiday, decentralized "single
window clearance," etc.
Twenty-five percent of goods manufactured in EPZ's are
permitted to be sold in the domestic market. No excise duty
is payable on such items and customs duties on imported
components is 50% of normal rates. Major exporters are
allowed to operate bank accounts abroad to facilitate trade.
Companies that sell in the domestic market as well as
international markets may deduct export earnings from their
tax liabilities.
Exporters and other foreign exchange earners have been
permitted to retain 25% of their foreign exchange earnings
in foreign currency. For 100% Export Oriented Units and
units in Export Processing Zones, Electronic Hardware
Technology Parks, retention up to 50% is allowed.
Other incentives
include:
Duty-free imports
of raw materials and components.
Tax holiday for a period of 5 continuous years in
the first 8 years from the year of commencement of
production.
Exemption from taxes on export earnings even after
the period of tax holiday.
Exemption from central and state taxes on production
and sale.
Permission to install machinery on lease.
Freedom to borrow self-liquidating foreign currency
loans at the prime rate of interest.
Inter-unit transfers of finished goods among
exporting units.
Decentralized single-window clearance of proposals
concerning units in Export Processing Zones.
EOU/EPZ units may export through Export Houses,
Trading Houses and Star Trading houses.
