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INDIA
– Overview
www.taxdirectorshandbook.co.uk
118
Changes to the Indian
tax regime
W
ith the focus of the
international tax arena
on the latest trends in
the Indian tax regime
and following the judgment in the
Vodafone case, India is at the threshold
of bringing in a far-reaching change, with
the Direct Taxes Code (DTC)
1
and the
Goods and Services Tax
2
.
Recent legislative changes
The Finance Act 2011 (the Act) has not
made any significant change to the
corporate tax rate
3
apart from a reduction
in the surcharge from 2.5% to 2% for
foreign companies, and 7.5% to 5% for
Indian companies. The rate of dividend
distribution tax (DDT) on dividends
distributed by domestic companies to
its shareholders remains constant at
15%. In order to incentivise repatriation
of offshore funds to India, the Act has
reduced the tax on in-bound dividends
received by Indian companies from
their foreign subsidiaries from 30%
to 15%.
There is a marginal increase in
Minimum Alternative Tax (MAT) from
18% to 18.5%. The key benefits available
to Special Economic Zones (SEZ) units
and developers was exemption from
MAT in respect of their income; this
exemption has been curtailed for both
SEZ units and developers, who are now
liable to pay MAT at the rate of 18.5%.
Further, developers of SEZ exempted from
the DDT are now required to pay DDT at
the rate of 15% on the profits distributed
as dividends.
MAT is now imposed on limited
liability partnerships computed at 18.5%
of adjusted total income and deemed
to be the income tax liability where
the regular income tax payable for a
particular financial year is less than the
corresponding MAT.
To combat ineffective exchange of
information, specific ‘black money and
toolbox provisions’ have been introduced
and are applicable in cases of transactions
entered into with persons located in
countries and jurisdictions which do not
effectively exchange information with
India, known as ‘notified jurisdictional
area’ (NJA). Besides the restriction
provisions relating to disallowance
Presented by Bijal Ajinkya (partner) and
Ankita Srivastava (associate), at Nishith Desai