India: The Big Budget - A Cheer For Foreign Investors

"Make in India" is an initiative of the Government of India to encourage companies to manufacture in India. The program includes major initiatives designed to facilitate investment, foster innovation, protect intellectual property and build best-in-class manufacturing infrastructure. The new Budget will set India off on a faster trajectory of growth while opening up more avenues for NRIs to contribute to the Nation's development.

There being enormous changes in the Budget 2015, there is definitely a lot of cheer for the foreign investors and of course an approach to take India to a NEXT LEVEL. Amongst the same, we shall now discuss some of the important proposals made in the Finance Bill which shall be applicable to the non residents.

A. Roll Back of Income Tax Rate on Royalty and fees for technical services:

The major step towards the "Make in India" initiative is the rollback of reduction of the rate of income tax on "Royalty" and "Fees for Technical services" from 25% to 10% (plus applicable surcharge and education cess). However, this lower rate of tax shall be applicable only if the nonresident has a Permanent Account Number [PAN] allotted by the Indian Tax Authorities, meaning thereby in the absence of the PAN, their income shall still be liable to a tax rate of 20%.

The Finance Act 2013 had increased the rate of Income tax on royalty and fees for technical services which were not effectively connected to a permanent establishment from 10% to 25%, in order to reduce the disparity of tax rate as per the Indian tax law and the Double Tax Avoidance Agreement [DTAA].

However, this roll back is definitely a welcoming move, as this reduced rate shall help encourage technological upgradation by import of technology, know how, software etc and boost the domestic production in India. Another major advantage will be the reduction of the burden on the Indian entities which till now were entering into contracts for payment of royalty and fees for technical services on net basis as now they will have to bear less amount of tax on such payments.

B. Clarification regarding the Indirect Transfer:

As per the current regime of the Indian Income Tax, the transfer of a capital asset situated in India is taxable in India. However, in order to dispel the worries of the foreign investors, the Finance Bill 2015 has proposed certain amendments to the existing provisions which shall partially nullify the retrospective amendment made by the Finance Act 2012 as a backdrop to the decision of the Hon'ble Apex Court in the Vodafone case. Stating a few, include defining a threshold limit for value of Indian asset; taxation of proportionate gains; exemption in cases of tax neutral merger and demergers; reporting obligations casted on the Indian parties including a liability to penalty etc.

The proposed amendments are set to provide a clear picture on the provisions related to indirect transfer including clarity on aspects related to computation of gains arising through such taxable transfers more appropriately prescribed in the proposed Rules forming a complete code on taxability of indirect transfers.

C. Freedom from Minimum Alternative Tax (MAT) to the Financial Institutional Investors:

In order to provide a relief to the Foreign Institutional Investors [FII], the income from the transaction securities [other than short –term capital gains arising on transaction not chargeable to STT] arising to a FII shall be exempted from paying MAT. However, there still remains a query as to whether MAT shall be applicable to the foreign companies not having a Permanent Establishment in India or not.

D. Introduction of the concept of "POEM":

Proposing to amend section 6 of IT act , POEM, a new term introduced in the Budget 2015 refers to the 'Place Of Effective Management' i.e identification of a place where the key management and commercial decisions of a company that are essential for the conduct of its business as a whole and in substance shall be made.

If a company has its POEM in India at any time during the year, then it shall be treated as a resident in India and accordingly taxed on its worldwide Income. At present, the law prescribes that a foreign company shall be regarded as a resident in India in any year, if the control and management of its affairs is situated wholly in India during that year. Meaning thereby, even a partial control for the company outside India was sufficient to hold the company as a nonresident.

The principal above being recognized and accepted by the Organization of Economic Cooperation and Development [OECD] is also along the lines of the definition of PEOM indicated in the Direct Taxes Code, 2013.

This amendment shall definitely affect a majority of foreign players who take their key management and commercial decisions in India including the foreign companies having Indian branches, foreign subsidiaries of Indian parent companies, overseas companies having global reporting structure with Indian connection and regional headquarters etc.

E. Deferral of General Anti-Avoidance Agreement [GAAR]:

Another important step taken is the postponement of the implementation of the GAAR to two more years. The provisions of GAAR were introduced by the Finance Act 2013 to be applicable from 1st April 2015, which now have been deferred to two more years to be effective from 1st April 2017.

F. Fund Managers of offshore funds outside India not to constitute a business connection in India:

Currently, the offshore funds managed by fund managers in India constitute a business connection in India by virtue of their fund managers in India even if they are managing the activities with respect to the investments outside India. Meaning thereby, apart from the taxation of the income received by such mangers in lieu of fees for their fund management activity, the income of the offshore funds from investments made outside India is also getting taxed in India due to such activities being undertaken in and from India constituting a business connection.

In order to avoid such situations and to facilitate the location of fund mangers of off shore funds in India, a specific regime has been proposed to modify PE norms with the object that the income of the fund would not be taxable in India solely on the basis that the fund management activity have been undertaken through a fund manager located in India. However, the same shall be subject to fulfillment of certain prescribed conditions.

G. Extension of the eligibility period of lower rate of withholding tax under Section 194LD:

Under the current tax regime, Section 194LD provides for withholding tax rate of 5% (Plus applicable surcharge and education cess) on interest income to Foreign Institutional Investors or Qualified Foreign investors for their investments in Government securities and rupee denominated corporate bonds provided that the rate of interest does not exceed the rate notified by the central government in this regard. The limitation date for the above was up to 31st May, 2015 which now has been extended to 30th June, 2017.

Further, the date with regards eligibility for the benefit of lower rate available U/S 194LC for External Commercial Borrowings [ECB's] has also been extended from 30th June, 2015 to 30th June, 2017.

H. TDS Returns for foreign remittances whether or not chargeable to tax:

Amongst the changes above, it is also proposed to amend Section 195 of the Income Tax Act wherein now the persons responsible for paying any sum to a non resident, not being a company or to a foreign company, shall be required to furnish the information of the prescribed sum in a prescribed form, in spite of the fact that the same would be chargeable to tax or not. This return is currently required to be submitted only in cases where the sum is chargeable to tax.

Furthermore, in order to ensure submission of accurate information, there has been a proposal for imposition of penalty in case of non submission or submission of incorrect information in the cases referred to above.

CONCLUSION:

Looking at the scenario above, it can be said clearly that the said Budget 2015 is majorly in the favor of the non resident Indians with an overall aim of encouraging the investors to invest into India and sending them an affirmative note that India is an investor friendly country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
Khaitan & Co
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
Khaitan & Co
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions