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1、Corporate Taxation and Compliance Regime in IndiaIndias Corporate Taxation Framework Transfer Pricing and International Taxation StrategiesCorporate Tax Compliance and Filing RequirementsBusiness Strategies for Tax Efficiency in IndiaPg 04Pg 09Pg 13 Pg 16Issue 64 April 2025|www.india-From Dezan Shir

2、a&Associates Issue 64 April 20252IntroductionCreditsPublisher-Asia Briefing Media Ltd.Lead Editor-Qian ZhouEditor-Archana RaoContributors-Arendse Huld,Divyansh ShrivastavaDesigner-Aparajita ZadooIndias corporate tax and compliance framework is in the midst of significant transformation,aimed at fost

3、ering a balance between business competitiveness and regulatory accountability.For companies already operating in or entering the Indian market,staying abreast of these changes is essentialnot just for compliance,but for strategic business planning.The tax regime includes a broad set of provisions t

4、ailored to different business types,sectors,and operational models.While domestic firms may benefit from preferential tax treatments and central and state government incentives,foreign companiesespecially those with a permanent establishment or income sourced in Indiaoften face higher tax rates and

5、more complex compliance obligations.In this edition of India Briefing Magazine,we present a structured analysis of Indias corporate taxation landscape.We provide an overview of tax rates,incentive schemes,and policies specific to key industries,outlining the opportunities available under Indias evol

6、ving tax regime.We look into practical tax efficiency strategies for businesses in India,ranging from the utilization of tax holidays and incentives to optimized business structuring for long-term sustainability.As India continues aligning its tax policies with global practices,informed and proactiv

7、e compliance remains critical.This edition offers valuable insights to help businesses navigate the complexities of Indias corporate tax environment.For tailored support,contact our advisors at I.ANKUR MUNJALCountry DirectorDezan Shira&AssociatesNew Delhi OfficeWith kind regards,Ankur Mwww.india-www

8、.vietnam-www.china- Issue 64 April 20253Asia Briefing Ltd.Unit 507,5/F,Chinachem Golden Plaza,77 Mody Road,Tsim Sha Tsui East Kowloon,Hong Kong.Annual SubscriptionIndia Briefing Magazine is published five times a year.To subscribe,please visit please explore the clickable resources below.Corporate T

9、axation and Compliance Regime in IndiaContentsIndias Corporate Taxation Framework Pg 04Transfer Pricing and International Taxation StrategiesPg 09Corporate Tax Compliance and Filing RequirementsPg 13Business Strategies for Tax Efficiency in IndiaPg 16ReferenceIndia Briefing and related titles are pr

10、oduced by Asia Briefing Ltd.,a wholly owned subsidiary of Dezan Shira Group.Content is provided by Dezan Shira&Associates.No liability may be accepted for any of the contents of this publication.Readers are strongly advised to seek professional advice when actively looking to implement suggestions m

11、ade within this publication.For queries regarding the content of this magazine,please contact:All materials and contents 2025 Asia Briefing Ltd.Like India Briefing on FacebookFollow India Briefing on TwitterConnect with Dezan Shira&Associates on LinkedinView Dezan Shira&Associates on Youtube Follow

12、UsScan the QR code to follow us on WeChat and gain access to the latest investor news and resourcesConnect with us for the latest news,events and insights across Asia.Legal,Tax,Accounting Newswww.india- and W S Advisory and C Issue 64 April 20254Indias Corporate Taxation Framework Indias corporate t

13、ax framework regulates the taxation of both domestic and foreign companies,with applicable ratesstandard or concessionaldetermined by company classification and eligibility.Recent reforms have been aimed at easing tax burdens,improving compliance mechanisms,and fostering a more investor-friendly env

14、ironment.Analysis of Indias corporate tax rates for AY 202526Indias corporate tax structure for AY 202526 offers varied tax rates tailored to company size Gain clarity on Indias corporate tax framework,implement risk-reduction strategies,and stay informed on current tax rates and levies.Chapter 1Arc

15、hana RaoBusiness EditorIndia BriefingAuthorand legal entity type,reinforcing the objective to foster a competitive investment climate.Business structuresranging from domestic companies to wholly owned subsidiaries and LLPsare taxed differently based on their form and functional objectives.Corporate

16、tax comparison:India vs.major global destinations Corporate tax laws are seen as key factors in global investment decisions,often influencing how companies allocate capital.Wholly-Owned Subsidiary vs.Branch Office vs.LLP:Comparative Tax AnalysisBusiness structureTax rate(approx.)Repatriation flexibi

17、lityKey tax implicationsWholly-Owned Subsidiary(WOS)22 percent(with surcharges),MAT applicableDividend subject to withholding taxEligible for treaty benefits,lower tax rate under certain schemesBranch office40 percent(including surcharge and cess)Repatriation allowed,taxed at branch levelLimited sco

18、pe,higher tax outgoLimited Liability Partnership(LLP)30 percent(plus surcharge and cess)Profit distribution tax-exemptNo DDT,however,may face scrutiny on repatriation arrangements Issue 64 April 20255Tax Slabs for Domestic Company for AY 2025-26ConditionIncome tax rate(excluding surcharge and cess)T

19、otal turnover or gross receipts during the previous year 2021 does not exceed INR 4 billion25%If opted for Section 115BA25%If opted for Section 115BAA22%If opted for Section 115BAB15%Any other domestic company30%Corporate Income Tax Rate in India(%)IncomeTurnover does not exceed INR 4 billion in FY

20、2020/21Other domestic companiesForeign companies with permanent establishment in IndiaBasicEffective*BasicEffective*BasicEffective*Less than INR 10 million25%263031.23536.4More than INR 10 million but less than INR 100 million25%27.823033.383537.13More than INR 100 million15%29.123034.943538.22*Effe

21、ctive tax rates include surcharge and health and education cess.For resident companies,surcharge shall be applicable at the rate of 0 percent,7 percent,or 12 percent,depending on total income.For non-resident companies,surcharge shall be applicable at the rate of 0 percent,2 percent,or 5 percent,dep

22、ending on total income.Further,health and education cess shall be levied at 4 percent,irrespective of the total income.India has made notable strides in enhancing its tax competitiveness.Domestic companies can opt for a concessional base tax rate of 22 percent,while the standard rates remain at 25 p

23、ercent or 30 percent,depending on turnover thresholds.When factoring in surcharge and cess,the effective tax rate hovers around 25.17 percent.Additionally,India imposes a Minimum Alternate Tax(MAT)at 15 percent,and dividends are taxable in the hands of shareholders.In major global economies,such as

24、the US,the federal corporate tax rate is 21 percent,with state taxes ranging from 0 to12 percent,bringing the effective rate to 25 to 28 percent.Dividends face separate taxation,including withholding tax for foreign shareholders.In the EU,corporate tax rates vary.Germanys effective rate is around 30

25、 percent,including trade tax and surcharges.France applies a flat 25 percent rate,while the Netherlands uses a tiered system19 percent up to 200,000 and 25.8 percent above.Dividend withholding taxes also apply,differing by country.ASEAN countries generally offer competitive tax regimes.Singapores he

26、adline rate is 17 percent,often lower due to incentives.Malaysia taxes at 24 percent,Thailand at 20 percent,and Indonesia at 22 Issue 64 April 20256percent,with plans to reduce it to 20 percent.Many offer tax holidays and sector-specific incentives.Chinas standard rate is 25 percent,with a reduced 1

27、5 percent for high-tech firms in designated zones.Preferential tax areas and incentives support innovation and regional growth.Dividends to foreign shareholders are subject to a 10 percent withholding tax.*The Netherlands is a member country of the European Union(EU).*South Africa is a member countr

28、ies in the African Union.*Spain is not a full member of the G20.However,it attends G20 summits as a permanent guest.Source:Trading EconomicsArgentinaAustraliaBrazilCanada ChinaFranceGermanyIndiaIndonesiaItalyJapanMexico*NetherlandsRussiaSaudi Arabia*South AfricaSouth Korea*SpainTurkeyUnited KingdomU

29、nited StatesCountryList of G20 Countries by Corporate Tax Rate(%)Tax rates as of 202535303426.525253034.94222430.623025.82020272425252521Indias key direct and indirect tax components affecting foreign businessesIndia,the fifth largest economy globally in 2025,presents significant opportunities for f

30、oreign investors and multinational corporations.However,navigating the Indian tax landscape requires a comprehensive understanding of both direct and indirect tax regimes.1.Corporate income tax and Minimum Alternate Tax Indias corporate tax framework includes mechanisms like the MAT,which ensures co

31、mpanies with low taxable income still contribute a minimum tax.To promote greater compliance and transparency,the system also features digital reporting requirements,strict transfer pricing rules for related-party transactions,and general anti-avoidance measures to prevent tax evasion.A company shal

32、l be liable to pay MAT at 15 percent of book profit(plus surcharge and health and education cess,as applicable)where the normal tax liability of the company is less than 15 percent of book profit.For a company that is a unit of an International Financial Services Centre(IFSC)and derives its income s

33、olely in convertible foreign exchange,MAT shall be payable at 9 percent(plus cess and surcharge as applicable).As per the Income Tax Act,1961,companies opting for special rate taxation under Section 115BAA and 115BAB are exempt from paying MAT.Companies opting for special rate of taxation under sect

34、ions 115BAA or 115BAB will not be allowed certain deductions like those under sections 80IA,80IAB,80IAC,80IB and so on,except deductions under sections 80JJAA and 80M.Issue 64 April 20257Foreign companies are subject to Corporate Income Tax(CIT)on income earned within India.In the FY2024-25 union bu

35、dget,India proposed to reduce the tax rate chargeable on the income of a foreign company.From April 1,2025,the rate of income tax chargeable on the income of a foreign company(other than that chargeable at special rates)would be 35 percent instead of 40 percent.Note that MAT provisions are generally

36、 not applicable to foreign companies that do not maintain a place of business in India.2.Dividend Distribution Tax and withholding taxesIndia abolished Dividend Distribution Tax(DDT)in FY 2020-21,shifting the tax burden from the company to the shareholders.Now,dividends received by foreign sharehold

37、ers are subject to withholding tax,typically at 20 percent,subject to relief under applicable Double Taxation Avoidance Agreements(DTAAs).Foreign investors must consider treaty provisions that may offer reduced rates,provided the required documentation and conditions(such as a tax residency certific

38、ate)are submitted.For non-resident persons,Tax Deducted at Source(TDS)is applied at a 20 percent rate,subject to the DTAA,if any.To avail of the benefit of a lower deduction due to the beneficial treaty rate with the country of residence,the non-resident has to submit documentary proof,such as Form

39、10F,a declaration of beneficial ownership,a certificate of tax residency,and so on.If these documents arent submitted,a higher TDS would be applied,which can be claimed at the time of filing the income tax return.Additionally,interest,royalty,and fees for technical services payments to non-residents

40、 are also subject to withholding taxes,ranging from 10 percent to 20 percent,again subject to DTAA relief.3.GST framework and cross-border transactionsIndias Goods and Services Tax(GST)is a unified indirect tax regime that replaced multiple state and central taxes.While GST has simplified domestic t

41、axation,its implications for cross-border transactions remain complex.Imports of goods and services attract Integrated GST(IGST),which is creditable against output tax liability for registered businesses.Foreign businesses involved in online services(for example,digital advertising and streaming ser

42、vices)may be required to register for GST as a non-resident taxable person(NRTP)or under the Online Information and Database Access or Retrieval(OIDAR)services regime.Furthermore,exporters and foreign service providers must be mindful of GST compliance requirements,input tax credits,and refund proce

43、dures.4.Capital gains tax for foreign investors Foreign investors are subject to capital gains tax on the sale or transfer of capital assets in India,including shares,debentures,and real estate.The applicable tax rate depends on the nature and holding period of the asset.Short-term capital gains(STC

44、G)on listed securities held for 12 months:15 percent Long-term capital gains(LTCG)on listed securities held for 12 months:12.5 percent(above INR 100,000,without indexation)For unlisted shares and other assets,STCG is taxed at 30 percent,and LTCG at 10 percent or 12.5 percent,depending on treaty prov

45、isions and indexation.Foreign investors often leverage tax treaties to avail reduced tax rates or exemptions,though India has renegotiated numerous treaties to include anti-abuse provisions.Issue 64 April 202585.Tax implications for company mergers and acquisitionsMergers,acquisitions,and business r

46、eorganizations involving foreign entities are subject to complex tax considerations in India.Transactions may attract capital gains tax,stamp duty,and indirect tax implications,depending on the deal structure(asset purchase versus share purchase).India provides tax neutrality for certain amalgamatio

47、ns and demergers,provided statutory conditions are fulfilled under the Income Tax Act,1961.However,cross-border mergers must comply with Foreign Exchange Management Act(FEMA)regulations and may involve transfer pricing considerations and withholding obligations.Indias tax reforms affecting foreign b

48、usinessesIndia continues to integrate more deeply into the global digital economy.These reforms,aimed at fostering fair taxation and aligning with global standards,carry considerable implications for foreign businesses operating in or engaging with the Indian market.1.Digital taxation and e-commerce

49、 compliancea.Abolition of equalization levyUnder the Finance Act 2025,India has withdrawn the equalization levy on digital services,initially introduced in the Finance Act 2020.This levy imposed a 2 percent charge on e-commerce platforms and a 6 percent charge on online advertising services.Its remo

50、val aims to simplify the taxation of digital transactions,reduce the tax load on foreign digital service providers,and encourage increased foreign investment in Indias digital sector.b.GST on cross-border digital servicesIndia mandates foreign service providersespecially those offering software-as-a

51、-service(SaaS),cloud computing,online subscriptions,and digital contentto register for GST under the OIDAR services category.Foreign entities are required to charge and remit GST on B2C services,adding a layer of indirect tax compliance unfamiliar to many offshore firms.2.Global minimum tax and its

52、business implicationsIn 2025,India is expected to evaluate joining the OECDs global minimum tax regime.The Pillar Two approach proposes a 15 percent minimum tax on multinationals,impacting those in low-tax jurisdictions or using aggressive tax planning.Foreign firms with Indian subsidiaries or perma

53、nent establishments may face higher tax liabilities,requiring adjustments to profit allocation and transfer pricing.Businesses should assess their Indian operations,focusing on holding structures,repatriation strategies,intercompany pricing,and compliance.TAX ADVISORY SERVICESCompanies face a number

54、 of tax challenges throughout all stages of their business cycle.Dezan Shira&Associates experienced team of tax accountants,lawyers,and ex-tax officials can help on a wide spectrum of tax service areas across all major industries.To arrange a consultation,please contact us at I or visit our website

55、at .EXPLORE MORE Issue 64 April 20259Transfer Pricing and International Taxation StrategiesEntities conducting business in India involving international transactions must ensure that their accounting practices and tax assessment comply with transfer pricing regulations.Chapter 2Archana RaoBusiness E

56、ditorIndia BriefingAuthorTransfer pricing regulations and the arms length principle.The transfer pricing regulations and arms length principle,enacted under Chapter X of the Income Tax Act,1961,and supplemented by detailed rules under the Income Tax Rules,1962,were introduced in India in 2001,in lin

57、e with global efforts to curb Base Erosion and Profit Shifting(BEPS).At the core of these regulations lies the arms length principle,which serves as a foundational standard to ensure that pricing in intercompany transactions reflects the price that would have been charged between unrelated parties u

58、nder comparable conditions.The arms length principle requires that international transactions between associated enterprises(AEs)be benchmarked against transactions between independent enterprises in comparable circumstances.This principle aims to neutralize the effect of special relationships on co

59、mmercial terms and thereby safeguard the tax base of the country.Indian regulations mandate that any income arising from international transactions or specified domestic transactions must be computed with regard to the arms length price.The term arms length price is defined as the price that would b

60、e applied in a transaction between unrelated parties,determined using prescribed methods.Indias transfer pricing regulations also include rigorous compliance requirements.Taxpayers undertaking specified international or domestic transactions above the prescribed threshold must maintain extensive doc

61、umentation and file Form 3CEB(a mandatory tax form for companies who are engaged in foreign or domestic business with associated enterprises),certified by a chartered accountant.The documentation should substantiate the selection of the most appropriate method,provide a detailed analysis of industry

62、 and business conditions,and demonstrate that the transactions have been conducted at arms length.Issue 64 April 202510In India,the prescribed thresholds under transfer pricing regulations are:1.International Transactions Threshold:No minimum thresholdRequirement:All international transactions with

63、associated enterprises(AEs)must comply with transfer pricing regulations,maintain documentation,and file Form 3CEB,certified by a chartered accountant.2.Specified Domestic Transactions(SDTs)Threshold:Aggregate value exceeds INR 200 million in a financial yearRequirement:If SDTs(such as transactions

64、between related domestic parties or certain preferential tax regimes)exceed this limit,the taxpayer must comply with transfer pricing documentation rules and file Form 3CEB.Methods for Determining Arms Length PriceComparable Uncontrolled Price(CUP)MethodThe price charged or paid for property transfe

65、rred or services provided in a comparable uncontrolled transaction+adjustments.Re-sale Price Method(RPM)Resale Price charged by the tested party for the goods or services obtained from the AE to the unrelated party minus the normal uncontrolled gross profit and the expenses incurred by the assessee+

66、adjustments.Cost Plus Method(CPM)A sum of direct and indirect costs incurred and normal uncontrolled gross profit+adjustments.Profit Split Method(PSM)Employed in transactions involving transfer of unique intangibles.The combined net profit of the AEs in a transaction is compared to their relative co

67、ntribution to arrive at the apportioned transfer price profit.Transaction Net Margin Method(TNMM)The net profit of the tested party is determined based on costs incurred,sales effected,assets employed,or any other relevant base.This is then compared with the net profit of comparable entities,determi

68、ned using the same base+adjustments.Other MethodAny other method that considers the price which has been charged or paid,or would have been charged or paid,for the same or similar uncontrolled transaction with or between unrelated parties under similar circumstances,considering all the relevant fact

69、s.Filing Form 3CEB:What You Need to KnowUnder Indias transfer pricing laws,companies must file Form 3CEB if they are involved in international transactions with associated enterprises or specified domestic transactions.The requirement for specified domestic transactions has been applicable since the

70、 assessment year 201314.Form 3CEB is submitted along with Form 3CD as per Sections 92A to 92F of the Income Tax Act,1961,which captures a comprehensive set of financial and transactional details of the business.The report,certified by a chartered accountant,ensures that the pricing of such transacti

71、ons complies with transfer pricing regulations.In this article,we explain how Form 3CEB plays a critical role in ensuring compliance with Indias transfer pricing laws,especially for businesses involved in cross-border or large domestic dealings.October 28,2020EXPLORE Issue 64 April 202511Compliance

72、with Base Erosion and Profit Shifting guidelinesIndia has restructured its transfer pricing and international tax rules to align with the OECDs BEPS framework,targeting tax avoidance by multinational enterprises through profit shifting to low-or no-tax jurisdictions.A notable reflection of this alig

73、nment can be seen in Indias reinforcement of the arms length principle,which underpins both domestic transfer pricing rules and the broader BEPS agenda.There is a heightened focus on the functional analysis of value creationconsidering where functions are performed,where risks are borne,and where as

74、sets are usedrather than merely relying on contractual arrangements.Another critical development has been Indias implementation of Action 13 of the BEPS Action Plan,which introduced a three-tiered documentation requirement:the Master File,the Local File,and the Country-by-Country Report(CbCR).The ma

75、ster file provides an overview of the global business operations and transfer pricing policies of the multinational group,while the Local File contains detailed documentation of the specific Indian entitys intercompany transactions.The CbCR,aimed at high-level risk assessment,provides jurisdiction-w

76、ide data on revenue,profits,taxes paid,and economic activity.India has also taken necessary steps in implementing mechanisms to reduce litigation and foster certainty in cross-border tax matters.The introduction and expansion of Advanced Pricing Agreements(APAs)both unilateral and bilateralreflects

77、the countrys cooperative approach in resolving transfer pricing issues.These agreements allow taxpayers to obtain binding certainty on the arms length pricing of their intercompany transactions for a fixed term.Simultaneously,India has been revisiting traditional concepts of PE and profit attributio

78、n,in line with BEPS Action 7 and ongoing global debates.There is increasing emphasis on capturing digital and highly mobile economic activity within the tax net,as evidenced by the introduction of an equalization levy and proposals for Significant Economic Presence(SEP)rules.However,Indias adoption

79、of BEPS principles has not been without challenges.The aggressive audit approach by Indian tax authorities,coupled with inconsistent interpretations of transfer pricing methodologies and comparability analyses,continues to generate significant tax disputes.While BEPS-compliant frameworks aim to fost

80、er uniformity and predictability,their implementation in India often diverges from the intended spirit,creating uncertainty for taxpayers.Double Taxation Avoidance Agreements(DTAAs)and Your India Investment StrategyIndia has established DTAAs with more than 90 countries,many of which provide reduced

81、 withholding tax(WHT)rates on specific income types.For investors,dealing with international tax rules can be complex,especially when different tax systems intersect.This article explores the role DTAAs play in shaping the investment strategies of foreign companies operating in India.May 17,2024EXPL

82、ORE Issue 64 April 202512DTAA and their benefits As of 2025,India has DTAAs in place with over 90 countries,serving as essential instruments in promoting cross-border trade and investment while providing a framework to address the complexities of taxing rights between jurisdictions.Indian DTAAs pred

83、ominantly follow the credit method,enabling residents to claim credit for foreign taxes paid on income that is also taxable in the country,thereby ensuring that the overall tax burden does not become excessive or discouraging.In addition to relief from double taxation,DTAAs provide a range of other

84、benefits.One of the most significant is the reduced rates of withholding tax on cross-border payments.For example,interest,royalties,or dividends that would otherwise be subject to higher domestic tax rates in India may be taxed at lower concessional rates under the provisions of a treaty.Moreover,D

85、TAAs contribute to legal certainty and predictability in tax matters.By defining the taxation rights of each country and establishing clear rules for determining tax residency,PE status,and source of income,these agreements reduce the scope for ambiguity and tax disputes.This clarity is particularly

86、 valuable for multinational enterprises,which often face complex tax exposure across multiple jurisdictions.Another vital feature of Indias DTAAs is the inclusion of mutual agreement procedures(MAPs),which provide a mechanism for resolving tax disputes that arise from inconsistent or incorrect appli

87、cation of the treaty provisions.Under the MAP framework,competent authorities of the contracting states can consult and negotiate to resolve cases of double NAVIGATE THE COMPLEXITIES OF TRANSFER PRICING Our experts at Dezan Shira&Associates provide tailored solutions to ensure compliance and optimiz

88、e your global tax strategy.To arrange a consultation,please contact us at I or visit our website at .EXPLORE MOREtaxation or treaty interpretation,thereby offering an alternative to time-consuming and costly litigation.This mechanism has become increasingly important in recent years,given the rise i

89、n cross-border tax disputes and the complexity of international taxation.India has also taken steps to modernize its DTAAs in light of global efforts to curb tax avoidance,particularly under the OECD-G20 BEPS initiative.The implementation of the Multilateral Instrument(MLI)under BEPS Action 15 marks

90、 a significant shift in Indias treaty policy.Through the MLI,India has modified numerous existing DTAAs simultaneously to incorporate anti-abuse measures such as the Principal Purpose Test(PPT),which seeks to deny treaty benefits where the primary purpose of a transaction is to obtain tax relief und

91、er the treaty.This shift underscores Indias commitment to safeguarding its revenue base while continuing to facilitate genuine cross-border economic activity.Issue 64 April 202513Corporate Tax Compliance and Filing Requirements Master key filing deadlines,compliance essentials,and practical strategi

92、es to keep your business on track and penalty-freenavigating the complexities of Indias corporate tax environment with ease.Chapter 3Operating in India involves navigating a dynamic and often complex regulatory environment,shaped by an evolving tax and compliance framework.For foreign companies,a de

93、ep understanding of key regulatory requirementscombined with proactive planningis essential to effectively manage tax exposure and minimize compliance risks.Tax risk mitigation for global businesses in IndiaForeign enterprises entering the Indian market can come across various tax-related challenges

94、 that can impact profitability and operational efficiency,if not addressed early.One of the most common risks is inadvertent creation of a PE,which may trigger unforeseen tax liabilities in India.This arises when a foreign companys employees,agents,or local operations perform functions that are deem

95、ed core to business generation or contract negotiations.To avoid such risks,foreign companies must ensure that Indian operations are structured in a manner that avoids constituting a PE unless intended,such as by using independent agents or limiting activities to auxiliary services.In India,tax auth

96、orities require detailed documentation and justification for all cross-border transactions between associated enterprises.Inadequate benchmarking,improper pricing methods,or failure to submit mandatory tax reports like Form 3CEB can result in adjustments,penalties,and prolonged litigation.To mitigat

97、e this,foreign companies must maintain contemporaneous documentation,adopt robust benchmarking methodologies,and consider entering into APAs for certainty.Withholding tax missteps are also a significant area of concern.Errors in tax deduction on payments made to residents or non-residentsespecially

98、royalties,interest,or technical service feescan lead to interest and penalty liabilities.Correct application Archana RaoBusiness EditorIndia BriefingAuthor Issue 64 April 202514of DTAAs,along with timely application for lower or nil withholding certificates under Section 197 of the Income Tax Act,19

99、61,is crucial.Indirect tax compliance under the GST law presents its own intricacies.Misclassification of goods or services,errors in invoice data,or non-compliance with input tax credit conditions can cause financial strain and regulatory scrutiny.Businesses must stay abreast of frequent rule chang

100、es and ensure precise tax coding,e-invoicing compliance,and timely return filings.Finally,delays or inaccuracies in corporate tax return filing often result in penalties and the loss of tax benefits such as the carry-forward of losses or MAT credits.Timely statutory audits,proper reconciliation of f

101、inancial data,and early preparation of tax returns are essential to maintain compliance and avoid late-filing consequences.Managing Permanent Establishment risksPE risk is one of the sensitive areas for foreign companies operating in India.A PE can be established when a foreign company maintains a f

102、ixed place of business in India,provides services for a substantial duration,or uses agents with authority to finalize contracts on its behalf.Indian tax authorities can tax the income attributable to such a PE,which also triggers additional compliance requirements such as tax registration,return fi

103、lings,and potential transfer pricing scrutiny.Types of PEs include:Fixed place PE(such as offices or warehouses);Service PE(through provision of services by employees or contractors in India);Agency PE(via dependent Indian agents);and Construction PE(in cases of infrastructure or installation projec

104、ts).Given the broad interpretation of PE in Indian jurisprudence and under certain DTAAs,foreign companies must take meticulous care in how their Indian operations are structured.To manage PE exposure,it is advisable to limit direct revenue-generating activities in India,maintain control over key bu

105、siness decisions at the foreign parent entity level,and carefully define the scope of work performed by Indian personnel or agents.Structuring India entities as Limited Risk Distributors or commission-based agents can further insulate the parent company from PE risk.Corporate tax filing:Essential re

106、quirements and timelinesCorporate tax compliance in India involves a well-defined set of statutory requirements and filing deadlines.Foreign companies operating in Indiawhether through a subsidiary,branch,or PEmust obtain a Permanent Account Number(PAN)before commencing operations.The annual income

107、tax return,typically filed using income tax Form ITR-6,must be submitted by October 31 following the end of the financial year,provided the entity is subject to audit.Where transfer pricing provisions apply,a detailed report in Form 3CEB must also be filed by the same deadline.For entities exceeding

108、 prescribed turnover thresholds,a tax audit under Section 44AB of the Income Tax Act,1961,is mandatory,and the corresponding audit report must be submitted in Form 3CD.Moreover,companies must ensure that Issue 64 April 202515quarterly TDS returns are filed in a timely manner,covering payments to bot

109、h residents and non-residents.Timely compliance not only avoids interest and penalties under Sections 234A,234B,and 234C but also ensures the ability to carry forward business losses and utilize MAT credit.GST and indirect tax complianceIndias GST regime,though designed as a unified tax system,requi

110、res careful adherence to ensure compliance across multiple layers.Businesses engaging in supply of goods or services must obtain GST registration once the prescribed threshold turnover is crossed or in cases of inter-state supply,e-commerce activity,or import of services.Registered entities are requ

111、ired to file monthly and annual returns,including GSTR-1 for outward supplies,GSTR-3B for tax payment,GSTR-9 for annual reporting,and GSTR-9C for reconciliation and audit in cases where turnover exceeds the prescribed limits.E-invoicing has become mandatory for companies exceeding a specified turnov

112、er threshold,with non-compliance resulting in invalid tax invoices and denial of input tax credit.One of the critical areas of GST compliance is the correct classification of goods and services under the Harmonized System of Nomenclature(HSN)and Services Accounting Code(SAC).Misclassification can le

113、ad to incorrect tax rates and litigation.Further,matching of input tax credit with vendor filings has become a key area of scrutiny.Delays or errors by vendors in uploading invoices can result in denial of credit to the purchaser.Indias GST Compliance Changes from April 1,2025:All You Need to KnowSt

114、arting April 1,2025,Indias GST compliance framework is introducing major updates aimed at strengthening security and minimizing fraud.Mandatory multi-factor authentication(MFA)will be required for accessing the GST portal,and stricter controls will be enforced on E-Way Bill(EWB)generation to ensure

115、authenticity in goods movement.Businesses must also reassess their aggregate turnover,adopt a new invoice series,and align with revised rules on reconciliation and the reverse charge mechanism(RCM).Staying informed and updating internal processes will be key to maintaining smooth,compliant operation

116、s under the new regime.March 31,2025EXPLORE STAYING AHEAD OF ASIAS EVOLVING TAX LANDSCAPE Tax laws and regulations throughout Asia are continuously being updated and refined.Our team of professionals is accustomed to navigating this fast-paced environment.To arrange a consultation,please contact us

117、at I or visit our website at .EXPLORE MOREForeign companies should also pay attention to the reverse charge mechanism,especially in cases of the import of services or dealings with unregistered suppliers.Periodic GST health checks,robust ERP integrations,and internal reconciliations can go a long wa

118、y to managing indirect tax risk.Issue 64 April 202516Business Strategies for Tax Efficiency in IndiaLeverage smart tax strategies to optimize efficiency and ensure compliance in Indias evolving business landscape.Chapter 4Indias intricate tax ecosystem presents both challenges and opportunities for

119、businesses.Companies seeking to optimize their tax footprint must adopt strategic approaches aligned with their business models,compliance requirements,and long-term goals.Selecting the right business structure for tax optimizationThe choice of legal structure has significant tax implications,with e

120、ach business structure subject to different regulations,tax rates,and repatriation rules.1.Hybrid structuring for IP and licensing income Strategic structuring of intellectual property(IP)and licensing income can influence a companys tax efficiency,especially for businesses with cross-border operati

121、ons.A commonly adopted model involves a hybrid structure where the IP is housed in a low-tax jurisdiction,such as Singapore or Ireland,while the Indian operating entity remits royalties or license fees to the foreign IP holder.This approach enables companies to benefit from the lower corporate tax r

122、ates applicable to IP income abroad while simultaneously securing tax deductions for royalty payments made from India.An effective configuration for businesses with operations in India involves setting up a dual-entity framework.Under this model,an Indian operating company(India OpCo)is responsible

123、for local operations and customer billing,while the foreign IP-holding company(IP HoldCo)retains ownership of the intellectual property and licenses it to the India OpCo.This structure is especially advantageous for software,media,SaaS,and consulting firms.Further optimization can be achieved throug

124、h thoughtful structuring of licensing arrangements,particularly for software and technology-based businesses.Additionally,careful contractual delineation between the right to use software and the transfer of Archana RaoBusiness EditorIndia BriefingAuthor Issue 64 April 202517software ownership is es

125、sential,as these are treated differently under tax laws and attract varying rates of withholding tax.Leveraging non-exclusive,limited-use licensing models can also support the application of lower tax rates under international tax treaties,enhancing the overall efficiency of cross-border IP monetiza

126、tion.2.Tax-efficient investment and expansion strategies for businessesNavigating Indias evolving tax incentive landscape requires a strategic approach,especially for businesses looking to optimize operations through Special Economic Zones(SEZs),GIFT City initiatives,research and development(R&D)ded

127、uctions,and innovation grants.SEZ units benefit from substantial tax advantages in India,including a 100-percent income tax holiday for the first five years,followed by partial tax benefits for the subsequent five years.These units also enjoy customs duty exemptions,further enhancing cost competitiv

128、eness.Similarly,units established in the GIFT City International Financial Services Centre(IFSC)are entitled to a full tax exemption on income for any 10 consecutive years within a 15-year window,along with reduced tax rates on interest,dividends,and capital gains,making it a highly attractive desti

129、nation for financial and fintech businesses.Companies investing in R&D can tap into specific incentives,such as a 150 percent tax deduction on approved scientific research expenditures.Additionally,innovation-led startups may be eligible for grants provided by institutions like the Department of Sci

130、ence and Technology(DST)and the Department of Biotechnology(DBT),fostering a strong ecosystem for innovation and technological advancement.Tax holidays and concessions in India offer businesses a powerful tool to optimize financial planning,reduce operational costs,and fuel long-term growth.Designed

131、 to attract investment and promote development across sectors and regions,these incentives serve as more than just tax reliefthey are strategic enablers of competitive advantage.Sectoral tax incentives also offer compelling opportunities.Under sections 80-IA,80-IB,and 80-IC of the Income Tax Act,196

132、1,industries such as infrastructure,renewable energy,power generation,and manufacturing benefit from targeted tax exemptions and deductions.These provisions not only support sectoral growth but also align business expansion with national development priorities.Infrastructure and energy businesses ad

133、ditionally gain from capital subsidies and regulatory ease,enhancing project feasibility.Geographically,businesses can capitalize on extended tax holidays in underdeveloped regions,such as the North-Eastern states and hill areas.These zones offer fiscal incentives along with lower operational costs,

134、creating an attractive proposition for companies looking to expand into cost-efficient and underserved markets.Startups recognized by the Department for Promotion of Industry and Internal Trade(DPIIT)enjoy numerous exemptions tailored to ease early-stage challenges.This includes:A three-year tax hol

135、iday under Section 80-IAC within the first 10 years;Angel tax exemption for startups under Section 56(2)(viib)of the Income Tax Act,1961;and Capital gains tax relief for qualifying investments.Issue 64 April 202518These measures enable startups to reinvest early profits into innovation,market expans

136、ion,and talent development.Manufacturing businesses can benefit from the concessional 15 percent corporate tax rate under Section 115BAB of Income Tax Act,1961,particularly if they are newly incorporated before a designated deadline.This regime requires businesses to forgo other tax incentives and a

137、dhere to strict eligibility criteria,but it provides a streamlined tax structure that enhances competitiveness and growth potential.Foreign investors and multinational corporations can integrate tax holidays into their India market strategy.Coupled with sector-specific incentives like Production Lin

138、ked Incentive(PLI)schemes,capital subsidies,and liberalized foreign direct investment(FDI)policies,tax concessions make India an increasingly attractive destination for investment in high-growth sectors such as electronics,electric vehicles(EV),pharmaceuticals,and semiconductors.Tax planning for pro

139、fit repatriation and cross-border transactionsEffective repatriation strategies are essential for global corporations to manage tax leakages and ensure smooth fund flows.Optimizing cross-border financing and transfer pricing strategiesDebt financing,particularly through External Commercial Borrowing

140、s(ECBs),remains a preferred funding route for capital-intensive sectors in India.This form of financing offers companies access to relatively low-cost international capital,making it especially useful for infrastructure,manufacturing,and energy-intensive industries.The tax efficiency of these inflow

141、sdebt interest,royalty,and fees for technical services(FTS)paymentscan be enhanced by leveraging Indias DTAA provisions.These treaties often offer reduced withholding tax rates,thereby lowering the overall cost of cross-border transactions and improving net returns to foreign entities.Dividends vs.R

142、oyalties vs.Interest Payments:Tax-Efficient Profit RepatriationMethodTax rate(approx.)Repatriation flexibilityDividends10%withholding tax(for foreign shareholders)No DDT,but subject to tax in home countryRoyalty payments10%withholding tax(subject to DTAA)Can be deductible expense for Indian entityIn

143、terest on ECBs5-10%withholding taxECB route allows structured debt financing Issue 64 April 202519Effective transfer pricing practices are critical for optimizing cross-border intercompany transactions.Taxpayers are required to maintain information related to international transactions undertaken wi

144、th AEs.The rules prescribe detailed information and documentation that must be maintained by the taxpayer.Such requirements can broadly be divided into two parts:Information on the ownership structure of the taxpayer,a group profile,and a business overview of the taxpayer and AEs,including prescribe

145、d details such as the nature,terms,quantity,and value of international transactions.The rules also require the taxpayer to document a comprehensive transfer pricing study.Adequate documentation must be maintained to substantiate the information,analysis,and studies documented under the first part of

146、 the rule.It also contains a recommended list of such supporting documents,including:Government publications;Reports,studies,technical publications,and market research studies undertaken by reputable institutions;Price publications;Relevant agreements,Contracts,and Correspondence.Ensuring arms lengt

147、h pricing is essential to avoid tax disputes and penalties.Depending on the functional and risk profile of the entities involved,businesses can adopt appropriate pricing methodologies such as the cost-plus method or the profit-split method to establish fair transfer prices.Businesses operating in lo

148、w-risk service categories such as IT-enabled services(ITES)or contract R&D may rely on safe harbor rules to comply with transfer pricing norms more efficiently.OPTIMIZE YOUR INDIA TAX STRATEGY At Dezan Shira&Associates,our team of experts cover all major industries,helping you optimize your India ta

149、x strategy and ensure compliance.To arrange a consultation,please contact us at I or visit our website at .EXPLORE MORE2025 Update on Safe Harbour Rules in India In a bid to enhance tax certainty and reducing litigation,Union Finance Minister Nirmala Sitharaman,during her Budget 2024-25 speech on Fe

150、bruary 1,announced the expansion of Safe Harbour Rules(SHR)under the Income Tax Act,1961.The SHRs will now cover a broader range of sectors and transactions,beyond traditional domains like IT/ITeS,software development,R&D services,and financial dealings such as corporate guarantees.This expansion is

151、 expected to further simplify tax compliance,provide greater predictability,and make India a more investor-friendly destination for international businesses.Safe Harbour Rules provide predefined profit margins for certain cross-border transactions between associated enterprises,ensuring that such tr

152、ansactions are automatically accepted by tax authorities without detailed scrutiny.Comprehensive documentation is essential to substantiate transfer pricing positions.This includes conducting a thorough Functional,Asset,and Risk(FAR)analysis,preparing benchmarking studies to support pricing decision

153、s,and presenting a robust justification for the margins adopted.By combining tax treaty planning,strategic financing methods,and robust transfer pricing frameworks,businesses can structure their cross-border operations in a way that enhances tax efficiency,minimizes regulatory risks,and supports sustainable international growth.