Answer ... Indian tax law sets out diverse schemes of taxation and rates for various categories of income and activities. Differential schemes are provided in relation to the income of entities such as:

• foreign institutional investors;
• insurance businesses;
• non-resident sportspeople and sports associations;
• mutual funds;
• patents developed and registered in India;
• shipping businesses;
• real estate/infrastructure investment trusts; and
• units established in international financial service centres.

In addition, certain business undertaken by non-resident taxpayers – such as the operation of ships and aircraft for the carriage of passengers, livestock or mail; oilfield services; and civil construction services – are eligible for a deemed system of taxation, with a deemed profit rate ranging from 5% to 10%.

Answer ... Corporate reorganisation measures such as demergers and amalgamations, subject to prescribed conditions, generally do not attract capital gains tax under the corporate income tax regime. Broadly, such measures require the transfer of all assets and liabilities of the amalgamating company or undertaking being transferred in case of demerger and the issue of shares to the shareholders of the amalgamating/demerged entity as the consideration. Further, the transfer of capital assets by a parent company to its wholly owned Indian subsidiary and vice versa does not attract capital gains tax.

Answer ... Taxable income is computed under different heads, such as:

• salary;
• income from house property;
• business income;
• capital gains; and
• income from other sources.

Different rules apply when computing income under the various heads of income, including the permissibility of deductions. With regard to business income, as a general rule, income is taxable on a net income basis as per the books of account regularly maintained, which in theory can be on either a cash or a mercantile basis. However, corporate entities must maintain books of accounts on a mercantile basis under corporate laws, and thus a cash basis is not practically feasible for corporate taxpayers. Other taxpayers may have the flexibility to choose, although a mercantile basis is generally adopted. Indian tax law also prescribes specific income computation and disclosure standards which must be additionally considered in computing income.

Some categories of business undertaken by non-resident taxpayers – such as operation of ships and aircraft for the carriage of passengers, livestock or mail; oilfield services; and civil construction services – are eligible for a deemed system of taxation, with a deemed profit rate ranging from 5% to 10%. The deemed system is also provided for a limited category of small domestic businesses and professionals.

Answer ... There are specific rules for the conversion of income in foreign currency earned by a local reporting company. The income must be converted based on the applicable exchange rate on the specified date applicable to the income.

Answer ... Indian tax law provides for a concessional tax rate of 10% for income earned from the exploitation of patents under the patent box regime. This regime is available to a resident taxpayer which is the true and first inventor of an invention, and whose name is entered on the patent register as the patent holder in accordance with the Patents Act, 1970. No deduction is available in respect of expenditure or allowances in the year in which there is eligible royalty income from the patent.

Intangible assets – that is, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of a similar nature – are regarded as assets which, if acquired (and not self-generated), are eligible for tax depreciation for computing business profits. On the transfer of such assets, the gains may be taxable as business income or capital gains, depending on the nature and characterisation of the intangible asset.

Answer ... Employers’ contributions to social security schemes for the benefit of employees are permissible for tax deduction. Such contributions are allowed as deductions on a payments basis.

Answer ... The tax rates may differ depending on factors such as:

• residential status;
• the category of taxpayer (eg, individual, company, partnership, trust, society); and
• in some cases, the nature of the income.

However, the tax rates are universally applied across business sectors.

Answer ... India imposes no remittance tax or other category of taxes on income earned by taxpayers other than income tax. However, the rate of income tax has an additional levy of surcharge and education cess (please also see the rates discussed in question 1.2).

India imposes an equalisation levy (EL) on certain types of digital transactions. Payments for specified services – including online ads, provision for digital advertising space and other facilities or services for the purpose of online advertising – are subject to an EL of 6%.

The scope of the EL has also been widened to bring considerations in the hands of ‘e-commerce operators’ from ‘e-commerce supply or services’ within the ambit of the EL. For this purpose, an ‘e-commerce operator’ is defined as a non-resident that owns, operates or manages a digital or electronic facility or platform for the online sale of goods, the online provision of services or both. Further, ‘e-commerce supply or services’ include:

• online sales of goods owned by the e-commerce operator;
• the provision of services provided by the e-commerce operator; and
• facilitation of the online sale of goods or services.

The EL imposed on this new category of e-commerce operations of non-residents is applicable at a rate of 2%.

Answer ... There are no such deemed deductions. However, for capital gains taxation, cost indexation adjustment is available if the assets have been held long term, as per the applicable provisions.