Tax Structure in India
The tax structure in India is divided into Direct and Indirect Taxes.
While Direct Taxes are levied on taxable income earned by individuals and corporate entities, the burden to deposit taxes is on the assessees themselves. On the other hand, Indirect Taxes are levied on the sale and provision of goods and services respectively and the burden to collect and deposit taxes is on the sellers instead of the assessees directly.
Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality and the Local Governments.
Over the last few years, the Central and many State Governments have undertaken various policy reforms and process simplification towards great predictability, fairness and automation. This has consequently lead to India’s meteoric rise to the top 100 in the World Bank’s Ease of Doing Business (EoDB) ranking in 2018. The Goods & Services Tax (GST) reform is one such reform to ease the complex multiple indirect tax regime in India.
Major Central Taxes are Income Tax, Central Goods & Services Tax (CGST), Customs Duty, Integrated Goods & Services Tax (IGST) while Major State Taxes are State Goods & Services Tax (SGST), Stamp Duty & Registration, Profession tax.
TAXATION ON FOREIGN ENTITIES
A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
A Project Office (PO)/ Branch Office (BO) is treated as an Indian Permanent Establishment (PE) of its Foreign headquarter. Therefore, it is taxable in respect of its Indian profits @ 40% Plus applicable surcharge and cess.
A subsidiary company incorporated in India is treated as a tax resident of India and is taxed at the special rate of 22%, plus surcharge and cess if the turnover is upto 4000 million INR otherwise at the rate of 30%.