DOING BUSINESS IN INDIA - PWC
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This publication is a joint project with Doing business in India
Contents
Disclaimer
Executive summary 4 This document is issued by
Hongkong and Shanghai Banking
Foreword 6 Corporation Limited, India
Incorporated in Hong Kong SAR
Introduction – Doing business in India 8 with Limited Liability in partnership
with PricewaterhouseCoopers
Conducting business in India 18 (PwC). It is not intended as an
offer or solicitation for business to
anyone in any jurisdiction. It is not
Taxation in India 20
intended for distribution to anyone
located in or resident in jurisdictions
Audit and accountancy 28
which restrict the distribution
of this document. It shall not be
Human Resources and Employment Law 29 copied, reproduced, transmitted or
further distributed by any recipient.
Trade 30
The information contained in
Banking in India 31 this document is of a general
nature only. It is not meant to
HSBC in India 32 be comprehensive and does not
constitute financial, legal, tax or
Country overview 36 other professional advice. You
should not act upon the information
Contacts 38 contained in this publication
without obtaining specific
professional advice. This document
is produced by the Bank together
with PricewaterhouseCoopers
(‘PwC’). Whilst every care has been
taken in preparing this document,
neither the Bank nor PwC makes
any guarantee, representation or
warranty (express or implied) as to
its accuracy or completeness, and
under no circumstances will the
Bank or PwC be liable for any loss
caused by reliance on any opinion or
statement made in this document.
Except as specifically indicated,
the expressions of opinion are
those of the Bank and/or PwC
only and are subject to change
without notice. This document
is not a ‘Financial Promotion’.
The materials contained in this
publication were assembled
in July 2012 and were based
on the law enforceable and
information available at that time.
Executive summary
Liberalisation of the Indian Extensive trade links Skilled workforce
regulatory framework has
enhanced its attractiveness Investors can leverage on India offers a highly-rated human
as a destination for foreign India’s trade network with capital base recognised for its
investors. This guide sets its regional and bilateral skills, knowledge and talent.
out some of the key issues free trade agreements
that foreign investors should with many trading partners. Well-developed
consider when establishing financial system
their operations in India. Increasing infrastructure
and good living standards Its financial system is well
Key aspects of doing regulated and offers a broad
business in India: A significant investment in range of services. Businesses
infrastructure is taking place can also tap into its developed
Growth in India, particularly in the capital markets as an alternative
metropolitan areas. Coupled source of financing.
India is the world’s largest with this, India offers good
democracy and the second- living standards with a robust Robust legal system
fastest growing major economy. transport system, superior
healthcare facilities and first- The legal and judicial system
Pro-business and class entertainment centres. here is robust and efficient,
stable government thus, businesses can count
Competitive tax system on India’s rigorous enforcement
India offers political stability of laws.
that is vital to foreign India offers a very competitive
investments. Government tax regime and comprehensive Great work ethics
agencies, which have network of Tax Treaties. Indian
a pro-business attitude, taxes would be further modified India has great work ethics
work closely with the by the introduction of Direct and a very professional way
business sector to promote Taxes Code (which was expected of operating. Employees are
economic growth. to be introduced in April 2012 hard working and willing to
but has been delayed) and work on holidays/weekends
the Goods and Service Tax. if necessary.
4
Foreword
In today’s world, business must year’s expertise, offers the Stuart Milne
compete on a much wider full range of banking and CEO
playing field, no longer confined financial services to customers HSBC India
within national borders. across 29 major Indian cities
Post liberalisation in 1991, India and backed by our global
has undergone a paradigm presence in 84 countries and
shift owing to its competitive territories with around 6,900
stand in the world. The Indian offices worldwide***. We
economy has been on a growth are well positioned to assist
trajectory over the last decade entrepreneurs, multinationals
with rapid strides across new and conglomerates eager
age industries like Information to tap into this exciting
Technology, IT enabled and booming market.
services, and Pharma to name
a few. Today, India is the third Created in collaboration with
largest economy in the world PricewaterhouseCoopers, this
by GDP PPP (purchasing power guidebook, Doing business
parity)*, seventh largest country in India, provides a thorough
in the world by area and second analysis of various options in
largest by population** and establishing a business in India.
there is ample reason for India’s It also provides an insight into
viability as a destination for key opportunities available
foreign investment. In addition in India, as well as taxation
to the above-mentioned systems and laws applicable
macroeconomic indicators, to businesses operating here.
higher disposable incomes,
emerging middle class, low As your trusted partner, HSBC
cost but competitive and is always looking for ways
skilled workforce, all contribute to facilitate your business
towards India being an growth. With this guide, I
appropriate choice for investors. hope you find the impetus
In India, the antecedents for building a successful
of the HSBC Group can be venture in India and I wish
traced back to setting up you a very prosperous future
of the Mercantile Bank in in this land of opportunities.
1853. HSBC, with over 150
* Economic Times report quoting IMF
data (http://articles.economictimes.
indiatimes.com/2012-04-19/
news/31367838_1_ppp-terms-india-s-
gdp-power-parity)
**http://www.indembassy.co.il/
***http://www.hsbc.com/1/2/about
6
Introduction
Doing business in India
Economic Growth The Index of Industrial middle-class population in the • India is ranked as the second
Production (IIP) registered country will reach 1 billion. most favoured destination for FDI
The growth of the Indian a robust growth of 6.8 per Since 2001, the Indian middle- over 2010-12 (World Investment
economy is based upon cent in January 2012. Output class has seen increases in Prospects Survey 2010-2012,
rapid urbanisation, poverty of the manufacturing sector its disposable income, and UNCTAD).
alleviation and building (which constitutes over 75 consequently, consumption
much-needed infrastructure. per cent of the index) grew by and savings have also risen. • India is the world’s top location for
This creates significant 8.5 per cent while the mining With the current rate of non-financial services investment
opportunities for foreign sector and electricity sector growth, analysts predict that and among the top three most
investment. In addition to this, increased by 2.7 per cent and by 2025, India will become attractive international investment
India is now Asia’s biggest 3.2 per cent respectively. the fifth largest consumer destinations (AT Kearney 2010 FDI
buying economy, and has the Industrial production expanded goods market in the world Confidence Index).
world’s largest growing middle by 4 per cent between and the Indian middle-class is
class. The 2011 PwC report, April 2011-January 2012. set to assume the traditional • India ranked among the top three
Profitable growth strategies role of the American and countries where British companies
for the Global Emerging In light of the economic European middle-classes. can do better business during
Middle (GEM) estimated uncertainties in Europe, This view has also been 2012-14 (Report by Leeds University
that by 2021, India will have although the Indian economy acknowledged by the Global Business School – commissioned by
about 600 million people has slowed down recently, industry in particular. UK Trade & Investment (UKTI).
constituting its emerging opportunities still exist for
middle class segment. significant growth. The With an enhanced consumer • Offers great promise as a
biggest problem in India has segment in terms of increased vital and high-potential market,
According to the Economic been inflation which was consumption in consumer securing the top ranking in
Survey 2011-12, the Indian averaging at 9.4% in 2011. durables furthering growth, both the AT Kearney’s 2009 Global
economy is estimated to grow With monetary tightening and and a positive outlook on Retail Development Index and the
at 6.9 per cent in 2011-12 and slowing growth, inflation is employment and rising 2009 Global Services Location Index.
7.6 per cent in 2012-2013. expected to plateau to 8% incomes, this has facilitated
The growth forecast has this year and 7.3% in 2013. growth in consumption.
broadly been based on the India’s performance has
rebound in the agriculture The Asian Development been widely acknowledged
sector which is expected to Bank has estimated that over by global agencies:
grow around 2.5 per cent. the next two decades, the
8
Demographic advantage decades, India’s position is 1. Gross
Domestic (GDP) Diagram 1, illustrates the Leading multinationals today 2. Major Trading Partners
strengthening: this is a product and Major Sectors GDP contribution made by are setting up their R&D centres
India is today one of the three of its high birth rate, which each sector in 2011-12. in India, thereby acknowledging India’s top-ten trading partners
largest Asian economies in terms will last until around 2050. India is the fourth largest India’s true potential. (for exports and imports) in
of purchasing power parity. The A young, eager and well- economy in the world in PPP The agriculture and allied 2010-2011, and their respective
median age of India’s population educated workforce is the terms with a per capita GDP sectors contribute towards While the prospects of sectors share in India’s total trade are
is 25, which in comparison to key to India’s future prosperity. level of US$3,039. 13.9% of India’s GDP with such as IT, Telecommunications, shown in Diagram 2.
other Asian countries, puts industry and the services Healthcare and Biotechnology
India in a very favourable In the modern knowledge The economy is constantly sector accounting for a have been well recognised, the India’s Top
demographic position. economy, this favourable evolving and growth share of around 27% and Indian Media and Entertainment Export Destinations
demographic phase provides opportunities are present across 59% respectively. Industry, Financial Services, UAE, US and Singapore were
The United Nations predicts India with a significant multiple sectors. As the supply Real Estate, Renewable India’s leading trading partners
that India’s working age competitive advantage and has of products and services is The trade, hotel, transport Energy, Travel and Tourism, in 2011-12 (April to September),
population (15-64 years) will important implications for the insufficient for the 1.2 billion and communications sector Retail, Education, and Auto accounting for 11.9%, 11.3%
increase by 135 million in one country’s economic growth people, this creates a significant account for the dominant Components among others, are and 6.2% respectively, of
decade, that is, by 2020. So trajectory and social stability. and sustained investment share GDP followed by also attracting global attention. India’s overall trade.
while most countries such as potential across all sectors Agriculture & allied sectors.
those in Europe, China and the Highlighted here are some ranging from infrastructure and
US will witness a decrease of the key attributes of energy to consumer goods and Diagram 2.
in workforce in the coming the Indian Economy. financial services. Percentage Share of Exports of Top 10 Countries in 2011-2012
Diagram 1.
China 5.2% Hong Kong 4.5%
Sector-wise composition of India’s GDP
Netherlands 3.1%
Singapore 6.2%
UK 2.8%
Germany 2.7%
Finance, Insurance, Real Agriculture & Allied 14%
Belgium 2.5%
Estate & Business 17.9%
USA 11.3% Saudi Arabia 2.0%
Mining & Quarrying 2.1%
Electricity, Gas &
Water Supply 1.9%
Manufacturing 15.3% UAE 11.9%
Others 47.8%
Trade, Hotel, Transport & Construction 7.8%
Communications 28.1%
Social & Personal Services 13%
Source: http://business.mapsofindia.com/india-gdp/ Source: Economic Survey 2011-12 (April - Sept 2011)
2011-12
10
India’sT op chemicals and related products India’s Top Import Sources
Manufacturing Exports with respective shares in
overall exports in 2011-12 China, UAE and Switzerland
The top four items in India’s (April to September) of 21.9%, were India’s leading import
manufactured exports are 19.1%, 15.1% and 12%. partners in 2011-12 (April to
engineering goods, petroleum September) contributing with
products, gems and jewellery, shares of 11.8%, 7.5% and
6.6% respectively.
Diagram 3.
Diagram 4.
India’s Top Commodity Exports in 2011-2012
Percentage Share of Imports of Top 10 Countries in 2011-2012
30 30
25 25
20 20 Australia 3.0%
Indonesia 3.1%
15 15
Others 46.7%
Germany 3.3%
10 10
Nigeria 3.4%
5 5
Iraq 3.9%
0 0
A B C D E F G H I
USA 4.7%
% 2010-11 % 2011-12
Saudi Arabia 6.0%
A. Engineering Goods
B. Petroleum Products
Switzerland 6.6% China 11.8%
C. Gems and Jewellery
D. Chemicals and Related Products UAE 7.5%
E. Agriculture and Allied Products
F. Textiles and Textile Products Source: Economic Survey 2011-12 (April - Sept 2011)
G. Others
H. Ores and Minerals
I. Leather and Manufactures
Source: Compiled from Ministry of Commerce and Industry and DGCI&S data (April - Dec 2011-12)
12
India’s Top Commodity 3. Foreign Investments Country-wise, investment repatriation of profits on capital
Imports routed through Mauritius investment is permitted, subject
The FDI regime has been remains the largest to payment of taxes and other
Petroluem and petroleum progressively liberalised during component of FDI infl ows specified conditions.
products, capital goods and the course of the 1990s into India in 2011-12 followed
Gold and Silver were India’s (particularly after 2000). by Singapore and the UK. • Indian capital markets are open
top commodity imports in A number of restrictions on to FIIs.
2011-12 (April to September) foreign investment have been Features of the government’s
accounting for 30.6%, 19.9% removed and procedures foreign investment policies • Indian companies are permitted
and 12.6% respectively, of have been simplified. and incentives offered by it: to raise funds from international
India’s overall imports. capital markets.
With limited exceptions, • No government approval is
Diagram 5. foreigners can invest directly required for FDI in majority • Special investment and tax
India’s Top Commodity Imports in 2011-2012 in India, either on their own or of the sectors/activities, incentives are given for exports
as a joint venture in industries except for a small negative list and sectors, including power,
35 35 where foreign investment formulated by the government. electronics, software and
is restricted. Moreover, food processing.
30 30
investment ceilings, which • The government has formulated
25 25
are applicable in certain ‘Sector-Specific Guidelines for • ‘Single window’ clearance
cases, are gradually being FDI,’ wherein investments up facilities and ‘investor
20 20 removed/phased out. India to specified sectorial caps are escort services’ are available
has witnessed a steady covered under the automatic in various states to simplify
15 15 increase of foreign infl ows route, with a few exceptions. the approval process for
10 10
over the years. FDI net infl ows new ventures.
have grown at a rate of over • Foreign Investment Promotion
5 5 30% compounded annually Board considers proposals for 4. Physical
and Economic
over the last decade. FDI foreign participation that do not Infrastructure
0 0 infl ows were US$36.5 billion qualify for automatic approval.
A B C D E F G H I
during April 2011-March India’s process of economic
% 2010-11 % 2011-12 2012 (US$16.0 billion in • Decisions on all foreign reform is firmly rooted in a
the corresponding period investment proposals are political consensus that spans
A. Engineering Goods of the preceding year). usually taken within 30 days its diverse political parties. Its
B. Petroleum Products Portfolio infl ows fell sharply of submitting an application. political institutions have fostered
C. Gems and Jewellery from US$31.3 billion a year an open society with strong
D. Chemicals and Related Products earlier to US$3.3 billion • Free repatriation of capital collective and individual rights
E. Agriculture and Allied Products during April-December 2011, investment is permitted, and an environment supportive
F. Textiles and Textile Products mainly as a result of the provided the original investment of free economic enterprise.
G. Others uncertainty and risk in the (on a repatriable basis) was
H. Ores and Minerals global economy in relation made in convertible foreign India’s time-tested institutions
I. Leather and Manufactures to the eurozone crisis. exchange. Further, free offer foreign investors a
Source: Compiled from Ministry of Commerce and Industry and DGCI&S data (April - Dec 2011-12)
14
transparent environment that 6. Legal System
guarantees the security of their
long-term investments. India’s The Indian judiciary has a
dynamic and highly competitive reputation of being independent
private sector has long been and non-partisan. Judges
the backbone of its economic are not appointed on political
activity. It accounts for over 75% considerations. They enjoy
of its Gross Domestic Product a high standing in society.
and offers considerable scope for
joint ventures and collaborations. The Judicial system has a unified
structure. The Supreme Court,
Today, India is one of the most the High Courts and the lower
exciting emerging markets in Courts constitute a single
the world. Skilled managerial Judiciary. Broadly, there is
and technical manpower that a three-tier division.
match the best available in the
world and a middle class whose The influence of the British
size exceeds the population of Judicial System continues
the USA or the European Union, to be significant. The
provide India with a distinct official language for Court
cutting edge in global competition. proceedings in the High
Court & the Supreme Court
5. Financial System is English. The procedural law
for land, as well as most of
Its financial system is well the commercial and corporate
regulated and offers a broad laws, are modelled on English
range of services including laws. English case law is often
banking, insurance, asset referred to, and relied upon,
management and treasury both by lawyers and judges.
services. Businesses here can
easily tap into its deep and liquid
capital markets as an alternative
source to raise funds.
16
Conducting business in India
A foreign company setting in the same field/area of Operating as a • Project office – Representing the parent
up operations in India has activity or who brings synergy Foreign Company Foreign companies planning to company in India and acting as
the following options: to the foreign investor’s plans execute specific projects in India a buying/selling agent in India.
for India. Sometimes joint • Liaison office can set up temporary project/
Operating as an ventures are also necessitated Setting up a liaison or site offices in India for this – Rendering services in
Indian Company due to restrictions on foreign representative office is a purpose. The RBI has granted information technology and
ownership in certain sectors. common practice for foreign general permission to a foreign development of software
• Wholly-Owned companies seeking to enter the entity for setting up a project in India.
Subsidiary Company The foreign investment Indian market. The role of such office in India, subject to the
A foreign company can set guidelines for investment offices is limited to collecting fulfilment of certain conditions. – Rendering technical support
upa wholly-owned subsidiary in an Indian company have information about the possible The foreign entity needs only for the products supplied by
company in India to carry out already been discussed above. market and to providing to provide a report to the parent/group companies.
its activities. Such a subsidiary information about the company jurisdictional Regional Office
is treated as an Indian resident • Limited Liability and its products to prospective of the RBI giving the particulars – Acting as a foreign airline/
and an Indian company for all Partnership (LLP) Indian customers. of the project/contract. shipping company.
Indian regulations (including LLP is a new form of business
Income Tax, Foreign Exchange structure in India. It combines Such offices act as listening and • Branch Office In general, manufacturing
Management Act, 1999 and the the advantages of a company, transmission posts and provides Foreign companies engaged activity cannot be undertaken
Companies Act), despite being such as being a separate a two-way information flow in manufacturing and trading through a branch office.
100% foreign-owned. At least legal entity having perpetual between the foreign company activities abroad can set up However, foreign companies
two shareholders, for a private succession, with the benefits and the Indian customers. branch offices in India for the can establish a branch office/unit
limited company, and seven of organisational flexibility A liaison office is not allowed following purposes, with the for manufacturing in a Special
shareholders, for a public limited associated with a partnership. to undertake any business prior approval of RBI: Economic Zone subject to the
company, are mandatory. At least two partners are activities other than liaison fulfilment of certain conditions.
required to form a LLP and they activities in India and cannot, – Export/import of goods.
• Joint Venture with an Indian have limited liability. LLP is therefore, earn any income Citizens of specified countries
Partner (Equity Participation) comparatively easier to manage in India, under the terms of – Rendering professional are prohibited from establishing
Although a wholly-owned with less compliance levels as approval granted by the RBI. or consultancy services. a project office or any other
subsidiary has proved to be compared to a company form place of business in India
the preferred option, foreign of organisation. Further, a LLP – Carrying out research without the prior permission
companies have also begun is not subject to mandatory work in which the parent of the RBI.
operations in India by forging requirements applicable to company is engaged that
strategic alliances with Indian a company with regard to promotes technical or financial
partners. The trend is to provision of depreciation and collaborations between Indian
choose a partner who is transfer to reserves prior to companies and a parent or
distribution of profits. The overseas group company.
FDI policy for LLPs has been
notified recently making this a
possible viable entity form for
Indian business operations of
foreign investors.
18Taxation in India
Corporation Income Tax
Corporate tax rates are as follows: Alternate Minimum Tax (AMT) Particulars Tax Rates*
Where taxable income A modified version of MAT, Resident Non-resident
For a company Other cases termed AMT is applicable
exceeds INR10 million
to LLPs and certain other a) Short-term capital assets1 Normal corporate/ Normal corporate/
Domestic Company 32.45% 30.9% taxpayers (other than (other than (b) below) individual tax rates individual tax rates
companies) who are availing
(30% plus surcharge of 5% plus b) Short-term capital assets-
(30% plus education cess of 3%)
from specified profit-linked tax
education cess of 3%) listed equity shares and units
incentives. In such cases, AMT
of equity-oriented funds
at 18.5% is payable on adjusted 15% 15%
Foreign Company 42.02% 41.2% which have been charged
total income.
to Securities Transaction
(40% plus surcharge of 2% and Tax (STT)
(40% plus education cess of 3%) Unadjusted AMT credit can be
education cess of 3%)
carried forward until the tenth c) Long-term capital assets-listed
year following the year in which equity shares in a company or
Dividend Distribution be paid/distributed/declared by companies whose tax payable the credit arises. Exempt Exempt
unit of an equity-oriented fund
Tax (DDT) such a domestic company for under normal income tax which have been charged to STT
the purpose of computation provisions is less than 18.5%
Dividend income is exempt in of DDT, provided that DDT has of book profits. The current d) Long-term capital
the hands of the shareholders. been paid for by the subsidiary. effective rates are as below. assets-unlisted securities 10% 10%
However, a DDT is levied (other than (c) above) 2
on companies declaring Minimum Alternate A credit of such tax paid under
dividends. The effective DDT Tax (MAT) MAT provisions is allowed e) Other long-term
rate is 16.22% (15% plus 5% against the tax liability which 20% 20%
capital assets3
surcharge and education cess The MAT ensures that arises in the subsequent
of 3%). In order to mitigate companies with low (or zero) ten years under the normal
*An applicable surcharge and education cess would also be levied on the above tax rates.
the cascading effect of DDT, tax liabilities under normal provisions of the Income-tax Act.
any dividend received by a tax rules are still subject to a 1. A short-term capital asset is one which is held for a period of not more than 36 months
domestic company during corporation tax charge. Thus, Unadjusted MAT credit can be (not more than 12 months in the case of shares, listed securities, units of mutual funds
any financial year from its MAT of 18.5% on book profits, carried forward until the tenth and zero coupon bonds).
subsidiary is allowed to be along with surcharges and year following the year in which
2. Effective FY commencing April 1, 2012 long-term capital gain arising from sale
reduced from the dividend to education cess is levied on the credit arises.
of unlisted securities in the case of non-residents will be taxed at the rate of 10%
(earlier 20%). Such gains are to be computed before giving effect to currency
fluctuations or any indexation benefits.
3. Indexation of cost of acquisition and improvement of a long-term capital asset of
any nature (other than debentures) is available to residents. However, the benefit of
indexation is available to non-residents only on long-term capital assets other than
shares/debentures of an Indian company acquired in foreign currency. Further, long-
Where taxable income exceeds term capital assets being listed securities, including equity shares in a company or
For a company Other cases unit of an equity-oriented fund, which have not been charged to STT, may be taxed
INR10 million at 10% (plus applicable surcharge and education cess) without giving any indexation
benefit at the option of the taxpayer.
Domestic Company 20.01% 19.05%
Foreign Company 19.44% 19.05%
20Computation of Total For certain priority items, area’. Transactions between any undertaken or is proposed to The Indian provisions require the with this documentation and
Income – General such as energy-saving taxpayer and a party located be undertaken. Certain notified computation of an ‘arm’s length reporting requirement will be
devices and pollution control in a notified jurisdictional area residents may also apply to the price’ to be based on ‘arithmetic subjected to significant penalties.
• All incomes accruing or arising equipment, depreciation is could have implications such Authority for Advance Rulings mean’ of comparable results.
in India are taxable in India allowed at higher rates. as higher withholding tax on to seek a ruling concerning the Furthermore, the law provides Once the accountant’s certificate
to a non-resident taxpayer payments, taxability of receipts computation of total income. flexibility in ALP by allowing has been filed, the relevant
subject to the Double Taxation Withholding taxes and non-deduction of expenses. variance of around 5% of the assessing officer with the
Avoidance Agreement (DTAA) Such an advance ruling would transaction value. However for FY approval of CIT may refer the
with the country of residence There is an obligation on Double Tax Avoidance be binding on the person seeking 2011-12 the Central Government case to Transfer Pricing Officers
of the taxpayer. the payer both resident as Agreements it in relation to the transaction has removed the 5% variance (TPO) for detailed review. The
well as non-resident, to and the income tax department and instead they would notify TPO can also review any other
• Taxable income is computed for withhold tax when certain Double Tax Avoidance cannot disregard the ruling unless the variance percentage. In international transaction for
a uniform accounting year, i.e. the specified income/payments Agreements override the there is some change in the facts addition, from FY 2012-13 the determination of ALP that
fiscal year from 1 April to 31 March. are credited and/or paid. Indian Income-tax Act or law affecting it. onwards, an upper ceiling of may be noted by him during
provisions to the extent that 3% is put in place in respect the course of proceedings
• The taxable income is called Transactions with persons they are more beneficial to Transfer Pricing of the Central Government before him. Based on available
‘Total Income’, which is located in Notified Territories the taxpayers (concessional notifying the tolerance information, the TPO may adjust
computed after adding tax rates applicable under Indian transfer pricing regulations range for the determination or recompute the prices of the
certain disallowances, such In order to discourage certain double tax avoidance provides that the pricing of of arm’s length price. international transactions. The
as loss on sale of assets and transactions with persons conventions that India has any transaction between order of such a TPO would
miscellaneous expenditure located in a country which signed with various countries). associated enterprises (AE), Burden of Proof have to be considered by
written off and the reduction does not effectively exchange Relief is granted in respect where either or both entities are and Assessment the Assessing Officer when
of certain allowances/benefits information with India, certain of income chargeable to non-resident for tax purposes finalising the assessment. Such
from the book profits. anti-avoidance measures were tax, both under the Income- (international transaction), is to The burden of proving that the an adjustment would attract tax
introduced from 1 June 2011. tax Act of India and the be computed with regard to international transactions are in and interest on the additional
Depreciation These measures would enable domestic tax laws in that other the arm’s length principle. Two accordance with the arm’s length amount. A penalty of 100%
the Government to designate country, in order to promote enterprises are considered to principle lies with the taxpayer. (rising to 300%) of the tax on the
Depreciation is allowed any Country/ jurisdiction not mutual economic relations, be associated if there is direct/ For this purpose, the Income-tax adjusted amount may be levied.
separately at the following rates exchanging information with trade and investment. indirect participation in the Act requires the maintenance
for computing taxable income. India as a ‘notified jurisdictional management or control or capital of prescribed information Dispute Resolution
Advance Rulings of an enterprise by another and documents relating to
enterprise or by the same international transactions In order to expedite the resolution
Factory Building 10% To facilitate full planning and persons in both enterprises. undertaken between AEs. of disputes of the MNCs, India
to avoid any future disputes The transfer pricing provisions Additionally it is also mandatory introduced an alternative dispute
Furniture and fittings 10% under the Income-tax Act, a generally follow the relevant to report all the international resolution mechanism in the
non-resident can approach the Organisation for Economic transactions with AEs during form of Dispute Resolution
Plant and machinery (general) 15% Authority for Advance Rulings Co-operation and Development the year. For this purpose a Panels (DRP). These DRPs are
to determine the income tax (OECD) guidelines. However, tax payer is required to file an comprised of three CITs. Such
Computers (including software) 60% aspects of any proposed or there are certain fundamental Accountant’s Certificate in the an alternate scheme of dispute
current transaction. differences. Effective from prescribed format by the due resolution is applied in respect
Motorcars, other than those used in a business of FY commencing on 1 April date of filing corporate tax return of foreign companies/companies
15% An advance ruling can also 2012, the scope of transfer i.e. 30 November following the facing adjustments on transfer
running them on hire
be sought by a resident to pricing regulations has also end of the relevant financial pricing orders passed on or
Intangible assets (such as know-how, patents,
determine the tax liability been extended to a number year. This certificate is obtained after 1 October 2009 which are
copyrights, trademarks, licences, franchises or any 25%
of a non-resident with whom of specified domestic from an independent Chartered prejudicial to the assessee. In
other business or commercial rights of a similar nature)
a transaction has been related party transactions. Accountant. Failure to comply such cases, the Assessing Officer
22Indirect Tax
is required to forward a draft order been initiated. Effective from FY Sales Tax 1 April 2005 in the majority of regard to exports from India, duties. Apart from the standard
to the assessee. The assessee commencing from 1 April 2012 Indian states. At present, all the duty is levied only on a very rate, reduced rates of 6% and
can file objections against the a reference can be made by a The sale of movable goods in Indian states have transitioned to limited list of goods. 2% are prescribed for certain
draft order before the DRP. resident as well as a non-resident India is chargeable to tax at the VAT regime. specified products. The rate
After considering all evidence/ to determine if the arrangement the central or state level. The The Customs Tariff is aligned at which excise duty is levied
objections and further enquiries, they propose to enter into would Indian regulatory framework Under this regime, the VAT with the internationally- on the goods depends on the
the DRP is to issue directions be hit by the GAAR provisions. has granted power to state paid on goods purchased from recognised Harmonised classification of the goods under
to the Assessing Officer within legislatures to levy tax on goods within the state is eligible for Commodity Description the Excise Tariff. The Excise Tariff
nine months. The Assessing Advance Pricing sold within that state. Such sales VAT credit in the hands of the and Coding System of is primarily based on the eight-
Officer passes an order within Arrangement (APA) are, therefore, chargeable to VAT purchaser. The input VAT credit Tariff Nomenclature (HSN) digit HSN classification adopted,
one month in conformity with at the rates notified under the can be utilised against the VAT/ provided by the World so as to achieve conformity
the directions of the DRP. The Effective from 1 July 2012, VAT laws of the relevant state. Central Sales Tax payable on the Customs Organisation. with the Customs Tariff.
order passed by the assessing APAs have been introduced All goods sold in the course sale of goods. This ensures that
officer pursuant to directions of with a view to significantly of interstate trade are subject the cascading effect of taxes is The peak rate of Basic Customs Service Tax
the DRP can be appealed both bring down TP litigation and to Central Sales Tax (CST). avoided and that only the value Duty (BCD) is currently set at
by Revenue and taxpayers before provide certainty to foreign Where goods are bought and addition is taxed. Currently, there 10% for all goods other than The erstwhile Service tax
Second Appellate authority. investors. APA is an agreement sold by registered dealers for is no VAT on imports into India agricultural and other specified regime, wherein service tax
between a taxpayer and a tax trading or for use as inputs in and exports are zero-rated. This products. Customs duty is was levied on specified taxable
GAAR authority on an appropriate the manufacture of other goods means that while exports are levied on the transaction value services, has been replaced with
transfer pricing methodology or specified activities (such as not charged to VAT, VAT charged of the imported or exported the Negative List based taxation
From FY commencing on for a set of transactions over a mining or telecommunications on inputs purchased and used in goods. While the general of services effective 1 July 2012.
1 April 2013 India’s legislative fixed period of time in future. networks), the rate of CST is the manufacture of export goods principles adopted for valuation In terms of the Negative List
GAAR would come into force. 2%, provided Form C is issued or VAT paid on goods purchased of the goods in India are in based scheme of taxation, all
Under these broad set of Rules an Direct Taxes Code (DTC) by the purchasing dealer to the for exports, is available to the conformity with the World Trade services are taxable except
agreement could be categorised Seller. In the absence of Form C, purchaser as a refund. Organisation agreement on those mentioned in the Negative
as ‘impermissible avoidance On 30 August 2010 the the applicable rate would be the customs valuation, the central List or specifically exempted
agreement’ if the main purpose is government placed before the rate of VAT on such goods in the State VAT is charged at varying government has established under the mega exemption
to obtain a tax benefit and one of Parliament the Direct Taxes Code originating state. rates of 1%, 4%, 5% and 20%. independent Customs Valuation notification. The existing rate of
the specified supplementary tests Bill, 2010. The Bill is modelled Goods other than those notified Rules applicable to the export service tax is 12%. In addition,
is met. The consequences would on the draft Direct Taxes Code CST is sought to be phased to be covered under the above and import of goods. EC of 2% and SHEC of 1%
be denial of tax benefits. The that was originally released in out before the introduction rates are charged at a general on the service tax is leviable
onus to prove that the transaction August 2009, changes proposed of Goods and Services Tax rate ranging from 12.5% to 15%. CENVAT (Excise Duty) and accordingly the effective
is impermissible is on Revenue. in the Revised Discussion Paper (GST) in India, which is likely The general rate though was set rate of service tax is 12.36%.
GAAR panel (not less than three released in June 2010 and further to be implemented post April at 12.5%, some of the states Central Value Added Tax
members) will be constituted to suggestions and comments 2013. In the interim, CST will have varied these tax rates in (CENVAT), commonly referred to For most services, the service
dispose of any references by the made on this by stakeholders. continue to co-exist with state view of revenue considerations. as excise duty is a tax levied on provider is liable to service tax.
Revenue and would include an The Bill was referred to the VAT. Inter-state procurement the manufacture or production of However, for certain specified
independent member from the Standing/Select Committee of on which CST is charged in the Customs Duty movable and marketable goods services, both the service
Ministry of Law. The GAAR order the Indian Parliament for further originating state is not eligible in India. The standard rate of provider and service recipient
would be appealable with the deliberation. The committee for input tax credit in the Customs duty is levied on the excise duty for non-petroleum are liable to service tax on the
Tribunal. CBDT has issued draft has submitted its report to the destination state. import of goods into, and export products is currently set at 12%. specified value of services
guidelines for implementation of Government in March 2012. DTC from India. The rate of customs In addition, Education Cess (EC) and in certain other cases, the
GAAR. Consultation process for was expected to be introduced in VAT duty applicable to a product to is set at 2% and Secondary liability has been cast on the
finalising the GAAR guidelines has April 2012 but has been delayed. be imported/exported depends and Higher Education Cess service recipient to discharge
State level sales tax was upon on its classification under (SHEC) is at 1%. These are service tax liability under
replaced by VAT with effect from the Customs Tariff Act. With applicable on aggregate excise reverse charge mechanism.
24Wealth Tax Tax Incentives Scheme Personal Tax
Wealth tax is charged net 100% Export-Oriented Units the SEZ. Exemption from DDT export profits for ten years up to A foreign national seconded incomes are subject to income
wealth as on 31 March every (100% EOU) Scheme to SEZ developers has been 31 March 2011. to work in India, in general, tax if received or are deemed to
year (referred to as the withdrawn from 1 June, 2011 and becomes liable to Indian be received in India, or accrue or
valuation date). Wealth tax is – 100% EOUs are extended a host exemption from MAT has also Enterprises/Undertakings income tax. Other taxes arise or are deemed to accrue
charged both on individuals of incentives and facilities, been discontinued with effect in Industrial Parks in to which an individual may or arise in India. However,
and companies at the rate of including duty-free imports of from financial year 2011-12. Specified States become liable are capital gains ROR income that accrues or
1% of the amount by which capital goods, raw material, and tax levied on disposal of assets arises outside India will also be
the ‘net wealth’ exceeds INR3 consumables as well as tax Expenditure undertaken by a Income tax holidays and in India and wealth tax levied subject to tax in India. In other
million. deductions against export income. developer on account of the exemptions from CENVAT on possession of taxable wealth. words, an expatriate who is ROR
– These units are permitted to development of SEZ is also are available for units set up Taxation in India is based on is taxed on his/her worldwide
The term ‘net wealth’ broadly be set up for a varied range exempt from duties of customs, in industrial parks in North the residential status of a income.
represents the value of the of business activities including excise and central sales tax. East states, subject to certain person and not on citizenship.
excess of certain assets over manufacture, services, software conditions. The residential status of a The Government has introduced
the debts concerned. Assets development, agriculture, A unit set up in an approved SEZ person under the Income-tax compulsory social security
include guest houses and aquaculture, animal husbandry, enjoys a 100% tax holiday for Tax holiday in respect Act is determined solely based regulations for employees
residential houses, motorcars, floriculture, horticulture and five years and 50% for the next of others on his or her physical presence holding foreign passports and
jewellery/bullion/utensils of sericulture, without any ten years (during the last five in India, regardless of the working for an entity in India
gold and silver, yachts, boats, restrictions of location. years subject to certain additional Undertakings engaged in purpose of the stay. A person to which the Provident Fund
aircraft, urban land and cash in – Trading activities are not covered conditions) out of profits operating and maintaining a may qualify to be a Resident (PF) Rules apply. India has,
hand. A debt is an obligation for the purpose of the benefits derived from actual exports of hospital or engaged in the and Ordinarily Resident (ROR), principally, two types of Social
to pay a certain sum of money extended to these units. goods and services. The tax business of hotel located in Resident but not Ordinarily Security schemes, namely, an
incurred in relation to those – Undertakings set up in EOUs holiday period commences the specified district having a Resident (RNOR) or a Non- Employees Provident Fund and
assets which are included in were eligible for a deduction of from the year in which the SEZ World Heritage Site are eligible Resident (NR) in India. an Employee Pension Scheme.
the ‘net wealth’. 100% of the derived export profits unit begins to manufacture or for tax deduction of profits
for 10 years up to 31 March 2011. produce or provide services. subject to certain conditions. Salary income is subject At the end of each year, a tax
to income tax in India if return has to be filed with the
Special Economic Zone Electronic Hardware Investment linked incentives services are rendered in India, income tax authorities in the
(SEZ) Scheme Technology Park (EHTP) irrespective of whether salary is prescribed form. The return is to
Scheme and Software Investment linked tax incentives received in India or not. Other be filed at the latest by 31 July
The SEZ Policy was introduced Technology Parks of India providing deduction of 100%- of the relevant assessment year.
with a view to provide an (STPI) Scheme 150% in respect of specified
internationally-competitive and capital expenditure is available to Personal Tax Rates
unproblematic environment for These schemes offer a package certain businesses. Examples of
exports. of incentives and facilities like qualifying investment are laying Taxable Tax on
Not Over Percentage on
duty-free imports in line with and operating a cross-country Income Over column 1
(INR) excess (%)
SEZs are duty-free enclaves the 100% EOU scheme, as well natural gas pipeline network (INR) (INR)
considered to be outside the as deemed export benefits and for distribution and storage,
0 200,000 – 0%
customs territory of India for tax holidays. Export-oriented IT building and operating a new
the purposes of carrying out enabled services like call centre hotel or hospital, developing 200,000 500,000 – 10%
their authorised activities. SEZ services, data processing, and building a housing project,
500,000 1,000,000 30,000 20%
developers are entitled to 100% medical transcriptions, etc. are new plant for production of
tax holidays (of profits and gains also eligible to be registered fertilizer, setting up and operating 1,000,000 and above 130,000 30%
derived from the business of under the STP scheme. an inland container depot,
developing the SEZ) for ten bee-keeping and production of A resident senior citizen (aged above 60 but below 80 years) and very senior
consecutive years out of 15 years Undertakings set up in EHTPs honey and beeswax, setting up citizens (aged 80 years and above) with income up to INR 250,000 and INR 500,000
beginning from the year in which or STPs were eligible for a and operating a warehousing respectively, do not have to pay tax. Further, an education cess at 3% of the tax is
levied (irrespective of the level of income).
26 the government is notified of deduction of 100% of derived facility for storage of sugar.Human Resources
Audit and accountancy and Employment Law
Businesses including both Human Resources legal and corporate status • Minimum Wages Act 1948,
private and public companies on registered trade unions; seeks to determine the minimum
and branches of foreign India has a large pool of all types rates of wages in certain
companies are required to of labour as well as an adequate • Plantation Labour Act 1951, employments, a list of which is
be audited by independent supply of office staff for both provides for the plantation contained in the legislation;
certified public accountants. management/supervisory labour and regulates the
and clerical posts. Skilled condition of work in plantations; • The Payment of Wages Act 1936,
Most companies have voluntarily manpower and professional seeks to regulate the payment
adopted 31 March as the date managers are available at a • Payment of Bonus Act 1965, of wages to certain classes
for preparing their financial comparatively moderate cost. provides for the payment of of employees in an industry;
statements because a uniform India is particularly rich in bonus to persons employed in
accounting year ending on IT professionals. Both Indian certain establishments on the • Factories Act 1948, is a principal
31 March is required for tax and multinational recruitment basis of profits or on production legislation that governs the
purposes. agencies exist in the market. or productivity, as well as health, safety and welfare of
The Indian work culture matters connected therewith; factory workers;
Company accounts must be is immensely diverse and
prepared according to the extremely professional. • The Payment of Gratuity Act • Employees Provident Fund
accrual basis of accounting and English language is used 1972, provides a scheme for and Miscellaneous Provisions
on a historical-cost basis, but for much official communication. the payment of gratuity to all Act 1952, seeks to ensure the
revaluation of capital assets is employees earning wages to financial security of employees
permissible. The Companies Act Employment Laws do any skilled, semi-skilled, in an establishment by providing
prescribes the form and content unskilled, manual, supervisory, a system of compulsory
of the balance sheet and the India is a member of technical or clerical work, savings;
information to be disclosed the International Labour whether the terms of such
in the Profit and Loss Account. Organisation and complies with employment are express • The Maternity Benefit Act 1961,
the conventions it has ratified. or implied, and whether regulates the employment of
It has enacted comprehensive or not such employees are women in certain establishments
legislations to provide a good employed in a managerial for prescribed period before and
working environment for labour or administrative capacity; after childbirth; and
and protects their interests.
• The Workmen’s Compensation • Employees State Insurance Act
The key labour laws applicable Act 1923, is to compensate an 1948, provides for healthcare
to employers and employees in employee or his/her survivors and cash benefits to the
India have been outlined below: in the vent of industrial accidents employees in case of sickness,
or occupational diseases, maternity or injury suffered
• The Industrial Disputes Act resulting in disablement or during the employment,
1947, is the main legislation death during the course of whether they are working
in India that provides for the the person’s employment; in a factory, establishment
investigation and settlement or elsewhere, or they are
of industrial disputes; • Industrial Employment directly employed by the
(Standing Orders) Act 1946, principal employee or through
• Trade Unions Act 1962, provides requires employers in industrial an intermediate agency, if the
for the registration of trade establishments to clearly employment is incidental or in
unions of employers and define the conditions of connection with the factory or
workers, and is administered by employment to their workers establishment.
the state governments. It confers by issuing standing orders or
28 implementing services rules;Trade Banking in India
The government is committed India’s banking system There are generally no
to liberalising its trade regime is among the strongest in the restrictions imposed on
as part of an effort to double world and it has strict banking both resident and non-resident
India’s share of world trade. The secrecy laws. As the regulator companies in holding bank
government is also working to of India’s financial services accounts. Savings accounts
improve customs clearance, and sector, the Reserve Bank of are, however, not offered in
is in the process of negotiating India has prudential oversight India to companies. Opening
a number of regional trade over the banking, securities, a bank account is a relatively
pacts. India joined the World futures and insurance industries, simple and straight-forward
Trade Organisation in 1995. It including administering the process. The extent of
has negotiated the South Asia various statutes pertaining to paperwork required largely
Free Trade Agreement (SAFTA), money, banking, insurance, depends on each bank’s
comprising other South Asian securities and the financial Know Your Client requirements.
countries, and also concluded sector in general. Investors with good credit
agreements with ASEAN and standing should generally
Thailand while still negotiating be able to avail themselves of
with Japan. a myriad range of credit facilities
in India. These credit facilities
From a very high level, include overdrafts, short-term
successive Indian governments advances to medium and long-
have worked to bring down term loans, import and export
tariff rates since the early financing facilities, etc.
1990s. While tariffs have
been reduced and quantitative
restrictions were largely
eliminated in 2001, India has
increasingly relied on non-tariff
barriers, including technical
standards and regulations,
sanitary rules, local content
schemes and quotas. Also,
since January 2005, a new
patent law has been in place,
designed to bring India in line
with international standards
and put local intellectual
property rights protection on
a par with WTO and Agreement
on Trade-Related Aspects of
Intellectual Property Rights
(TRIPS) provisions.
30HSBC in India
Who We Are
The antecedents of the HSBC The Bank is the founding and a 2003 HSBC Insurance Brokers 2005 First bank to provide 1998 First to introduce an
Group in India can be traced principal member of the HSBC (India) Private Limited (ININ) a scorecard-based unsecured affinity card with a Club –
back to October 1853 when Group which operates 6,900 overdraft offering to the the Tollygunge Club Card
the Mercantile Bank of India, offices in 84 countries and 2003 HSBC Operations and Indian SME (Small and
China and London was founded territories in Europe, the Asia- Processing Enterprise (India) Medium Enterprise) 1996 First to provide NRI and
in Mumbai. The acquisition in Pacific region, the Americas, Private Limited (HOPE) foreign users international online
1959 by The Hongkong and the Middle East and Africa. 2005 First bank to issue Private access to their accounts abroad.
Shanghai Banking Corporation HSBC is one of the world’s 2008 Canara HSBC Oriental Label Credit Card in India
Limited of the Mercantile largest banking and financial Bank of Commerce Life 1995 First to take on VISA
Bank, was a decisive factor services organisations. Insurance Company Limited 2004 First bank to offer Plus acquiring business
in laying the foundation for repayment flexibility for
today’s HSBC Group. Founded Historical Milestones 2009 HSBC InvestDirect(HIDL) personal loan customers 1995 First to undertake
in 1865 to serve the needs of Global ATM Switch System
the merchants of the China Year of commencement Firsts in India 2003 First bank to offer 0% (GATS) issuing
coast and finance the growing of operations in India surcharge on buying auto fuels
trade between China, Europe A leader in bringing state- on credit card 1995 First to undertake GATS
and the United States, HSBC 1853 The Mercantile Bank of-the-art electronic banking acquiring business
has been an international of India, China and London technology to India and to its 2000 First bank to offer HSBC
bank from its earliest days. customers, HSBC in India has Premier Customers, hospital 1995 First to introduce
1867 The Hongkong and several ‘Firsts’ to its credit. access without initial deposit off-branch ATMs
The Hongkong and Shanghai Shanghai Banking Corporation and emergency referral service
Banking Corporation Limited Limited (HBAP) 2009 First Bank to launch an 1994 First bank to provide
in India offers a full range of integrated E-Card for supply 1999 First bank to offer a online access to accounts
banking and financial services 1995 HSBC Securities and chain farmers choice between Fixed and
through its 50 branches and Capital Markets (India) Private Floating interest rates to 1989 First to have inter-branch,
142 ATMs across 29 cities. Limited (HSCI) 2009 First Bank in India to offer its Home Loan customers inter-city connectivity
Non-Life Insurance product
HSBC is one of India’s leading 2000 HSBC Electronic Data through ATMs 1999 First to introduce 1987 First bank to provide ATMs
financial services groups, with Processing India Private Export Factoring
over 30,000 employees. Limited (HDPI) 2008 First Bank in India to 1985 First bank to
offer HSBC Direct, a zero- 1999 First bank to integrate computerise operations
HSBC’s network of branches 2001 HSBC Professional balance alternate-delivery electronic banking platform
are located in Ahmedabad, Services (India) Private Limited channel-driven proposition with an ERP solution (SAP R/3)
Bangalore, Chandigarh, (HPSI) targeted at the SME space
Chennai, Coimbatore, Gurgaon, 1999 First foreign bank to raise
Guwahati, Hyderabad, Indore, 2002 HSBC Software 2008 First Bank in India to 10-year Subordinated Debt
Jaipur, Jodhpur, Kochi, Kolkata, Development (India) Private offer Fixed Deposit product
Ludhiana, Lucknow, Mumbai, Limited (HSDI) through ATMs 1999 First Forward Rate
Mysore, Nagpur, Noida, New Agreement in the country
Delhi, Nasik, Patna, Pune, 2002 HSBC Asset Management 2006 First Bank to offer
Raipur, Surat, Trivandrum, Thane, (India) Private Limited (AMIN) security device (OTP token)
Vadodara and Visakhapatnam. for internet banking
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