have any other activity in India. ￭ Accelerated depreciation at the rate of 60% is available for plant (with a few exceptions) used by mineral oil concerns. New machinery or plant acquired or installed after March 31, 2005 may be subject to additional depreciation of 20%. ￭ A 7 year tax holiday is available for undertakings engaged in commercial production of mineral oils or refining of mineral oils. This is not available for concessions awarded after March 31, 2011 (or March 31, 2012 with respect to refining of mineral oils). ￭ Business losses can be carried forward for a period of 8 years, subject to a 51% continuity of ownership test. B. Dividends Dividends distributed by Indian companies are subject to a dividend distribution tax (“ DDT ”) at the rate of 16.22%, payable by the company. However, no further Indian taxes are payable by the shareholders on such dividend income once dividend distribution tax is paid. An Indian company would also be taxed at the rate of 21.63% on gains arising to shareholders from distributions made in the course of buy-back or redemption of shares. C. Capital Gains Tax on capital gains depends on the period of holding of a capital asset. Short term gains may arise if the asset is held for a period lesser than 3 years (or 1 year for securities). Long term gains may arise if the asset is held for a period more than 3 years (or 1 year for securities). Long term capital gains earned by a non-resident on sale of unlisted securities may be taxed at the rate of 10.5% or 21% depending on certain considerations. Long term gains on sale of listed securities on a stock exchange are exempt, and only subject to a securities transaction tax (“ STT ”). Short term gains earned by a non-resident on sale of listed securities (subject to STT) is taxable at the rate of 15.76%, or at ordinary corporate tax rate with respect to other securities. India has recently introduced a rule to tax non-residents on the transfer of foreign securities the value of which are substantially (directly or indirectly) derived from assets situated in India. D. Withholding Taxes Tax would have to be withheld at the applicable rate on all payments made to a non-resident, which are taxable in India. The obligation to withhold tax applies to both residents and non-residents. Withholding tax obligations also arise with respect to specific payments made to residents. Failure to withhold tax could result in tax, interest and penal consequences. E. Double Tax Avoidance Treaties India has entered into more than 80 treaties for avoidance of double taxation. A taxpayer may be taxed either under domestic law provisions or the tax treaty to the extent it is more beneficial. A non- resident claiming treaty relief would be required to file tax returns and furnish a tax residency certificate issued by the tax authority in its home country. Certain tax treaties such as the treaties with Mauritius, Singapore, and Netherlands provide significant relief against Indian withholding tax on capital gains and interest income in specific circumstances.
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- Winter '14
- Bijay K Behra
- Nishith Desai Associates