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Indian Tax & other relevant Laws

Bilateral Agreements with the United Kingdom

The India-UK Double Taxation Avoidance Convention (DTAC) was signed in 1993 and was effective in India from January 1, 1994. A MoU on the Convention’s arbitration process was signed in 2004. Further, a Protocol to the Convention for taxes to be deducted at source was agreed and signed in 2013. The DTAA, the MoU and the Protocol to the DTAA allows, among other matters, for avoidance of double taxation, dispute resolution, exchange of information and recovery of Income-tax. The provisions of the Convention, in addition to the Income-tax Act, 1961-2018, govern the Indian tax environment for the UK resident entities doing business or investing in India.

For the full text of the India-UK DTAA please click here: https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx

Transfer Pricing

"Transfer pricing" refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. In certain instances the effect of transfer pricing maybe that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction. The result is revenue loss for the concerned jurisdiction and also a drain on foreign exchange reserves. In order to avoid such an outcome India has adopted a set of transfer pricing provisions as part of its tax laws. The relevant provisions may be found at the link below.

https://www.incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx

Advance Pricing Agreements

The Advance Pricing Agreement (APA) programme was launched by India in 2012. It is an initiative of the Government of India for fostering a non-adversarial tax regime. The primary goal of such programmes is to provide certainty to taxpayers in respect of cross-border transactions undertaken by such taxpayers with their group entities. Under the APA programme, APAs can be multilateral or bilateral (involving CBDT and the tax authorities of one or more countries) or unilateral (involving the CBDT only. The provisions governing the APA may be accessed using the link below:

https://www.incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx

Safe Harbour Rules

Government of India notified a set of safe harbour rules for the first time in 2013. These rules are expected to reduce transfer pricing disputes and provide certainty to taxpayers. A new regime was notified in 2017 to align the safe harbour margins with industry standards and to enlarge the scope of safe harbour transactions. The new regime came into effect from 1 April 2017 and will continue to remain effective for 2 assesment year ie till AY 2019-20.

The salient features of the new Safe Harbour Regime are:

  • The safe harbour regime is optional and the Entities have the right to choose the safe harbour option most beneficial to them.
  • A new category of transactions being “Receipt of Low Value-Adding Intra-Group Services” introduced.
  • It is available for transactions limited to Rs. 200 crore in provision of software development services, provision of information technology-enabled services, provision of knowledge process outsourcing services, provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs.
  • In respect of transactions involving provision of software development services and provision of information technology-enabled services, safe harbour margins have been reduced to peak rate of 18% from 22% in the previous regime.
  • In respect of transactions involving provision of knowledge process outsourcing services, a graded structure of 3 different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% in the previous regime.
  • In respect of transactions involving provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs, safe harbour margins have been reduced to 24% from 30% and 29% respectively in the previous regime.
  • Risk spreads on intra-group loans denominated in foreign currency benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th September of the relevant year and on loans denominated in Indian Rupees to the 1-year SBI MCLR as on 1st April of the relevant year.

The safe harbour rules and related content is available under this link:

https://www.incometaxindia.gov.in/Pages/international-taxation/transfer-pricing.aspx

Advance Rulings

Advance Ruling refers to a written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto.

The scheme of advance rulings was introduced by the Government of India in 1993 and it came into force with effect from 1-6-1993. Under the scheme the power of giving advance rulings has been entrusted to an independent adjudicatory body headed by a retired judge of the Supreme Court. The rulings of the Authority are binding both on the Income-tax Department and the applicant. The procedure prescribed is simple, inexpensive, expeditious and authoritative.

An advance ruling can be obtained by persons including:-

  1. a non-resident
  2. any person, being a resident or non-resident, to decide whether an arrangement proposed to be undertaken by him is an impermissible avoidance arrangements and may be subjected to General Anti Avoidance Rules or not
  3. an applicant as defined in section 28E(c) of the Customs Act, 1962
  4. an applicant as defined in section 23A(c) of the Central Excise Act, 1944
  5. an applicant as defined in section 96A(b) of the Finance Act, 1994
  • The advance ruling is to be given on questions specified in relation to such a transaction by the applicant.
  • The Authority shall pronounce its advance ruling within 6 months of receipt of the application.
  • An applicant desirous of obtaining an advance ruling should apply to the Authority in the prescribed form stating the question on which the ruling is sought.
  • The application has to be made in quadruplicate in relevant Form as prescribed
  • The application may be withdrawn within 30 days from the date of the application.
  • The details may be accessed at the link below:
    https://www.incometaxindia.gov.in/Pages/international-taxation/advance-ruling-details.aspx

Tax payers’ services

The utilities for taxpayers’ services including on filing tax returns, applying for PAN and TAN, checking for status of filed tax returns may be found at the link below:

https://www.incometaxindia.gov.in/Pages/tax-services.aspx

General FAQs

FAQs useful for Non-residents, FAQs on capital Gains and House property income may be accessed through the link below:

https://www.incometaxindia.gov.in/Pages/faqs.aspx

Latest news & Circulars/Notifications

Disclaimer: Please note that the contents of this website should not be construed as an exhaustive statement of law. In case of doubt, or before taking any decision, reference should always be made to the relevant provisions of the act(s) or rules as may be applicable for the period for which the issue would pertain to and, wherever necessary, to notifications issued from time to time. This facility is only meant to provide guidance. The High Commission of India would in no manner or case be liable or responsible for the decisions taken based upon the same.