- The Union Budget 2016 introduced a special 'royalty tax' which the tax rate on income earned from patents is 10% (vs. 30% after deducting expenses). The objective is to encourage domestic research and development with an aim to make India an innovation hub. The benefit will be available across knowledge-based sectors, including automotive, electronics and pharmaceuticals.
- Resident shareholders, whether individuals or companies, who earn dividend income of more than Rs 10 lakh (approximately USD 15,000) a year, will now have to pay tax on such income at a flat rate of 10%. Foreign investors who are non-tax resident of India are not subject to this newly introduced tax.
- An amnesty program, Income Declaration Scheme, is offered from 1 June 2016 to 30 September 2016 for domestic taxpayers to rectify their past non-compliance of undisclosed income. There will be no questions being asked, no scrutiny and no prosecution to those who come forward to clear up past non-compliance by paying tax at 30%, a surcharge at 7.5% and a penalty at 7.5%, totalling 45% of undisclosed income.
- In line with the recommendations contained in the OECD BEPS report on Action 13, India will adopt the three-tiered transfer pricing documentation structure consisting of (1) a master file containing standardized information relevant for all MNE group member; (2) a local file
- referring specifically to material transactions of the local taxpayer; and (3) a country-by-country ("CbC") report containing certain information relating to the global allocation of the MNE's income and taxes paid together with certain indicators of the location of economic activity within the MNE group. The CbC will enter into force from1 April 2017 and apply to MNE with consolidated group turnover of more than EURO 750 million (or equivalent local currency).
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