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Tax Incentive for doing Business in India

The Government of India has framed several lucrative tax incentives for doing business in India. The aim is to encourage investment and help businesses save money by reducing the tax liability.

Following are some of the key tax incentives available to businesses in India –

Tax Incentive for Export Promotion –

This incentive is available to eligible businesses commencing operations between April 2006 to 31st March 2021. Eligible export businesses are entitled to a deduction of 100% of profits and gains for the period of first 5 year, from the date of commencement of business. Which shall be followed by a deduction of 50% of profits and gains for the next 5 years. Additional deduction of 50% of ploughed-back export profits and gains for the next 5 years is also available.

The government has also announced reversion of duties and taxes on export products, such as electricity duties, VAT on fuel. These duties and taxes which are not exempt under any other mechanism, will be digitally refunded to exporters.

Option of Reduction of Tax Rate for Domestic Companies –

The income tax rate for domestic companies has been reduced from 30% to 25% to 22% to 15% (excluding surcharge and cess). This is applicable to domestic companies subject to satisfaction of certain conditions.

Tax Incentive for International Financial Services (IFSC) –

Several direct tax incentives are provided to IFSC one of which is 100% profit-linked deduction u/s 80LA in any 10-year block, within a 15-year period. The government has also granted exemption on capital gains to certain categories of companies. Exemption is also granted from Dividend Distribution Tax (DDT) out of current and accumulated income to companies and mutual funds and interest payment on loan taken from NRIs.

Reduction of Tax Litigations –

In order to reduce the number of pending litigations, the government has launched “Vivad Se Vishwas” Scheme. As per the scheme, the taxpayers are required to deposit the disputed tax demand in case of pending appeals. Interest and penalty on such demands is completely waived off if it is paid on or before 31st March 2020.

Inapplicability of Minimum Alternate Tax (MAT) Provisions to Certain Foreign Companies –

The provisions of MAT are inapplicable to foreign companies that are engaged in the business of shipping, air transport, oil exploration, and turnkey construction. And such companies have opted for presumptive taxation.

Amortization of Expenses Incurred for a business –

Expenses incurred for setting up or extension of a business qualifies for deduction under the Act. Such expenses can be amortised and claimed as deductions over a period of 5 consecutive years and in 5 equal instalments, beginning from the year of commencement/extension of the business.

Note: Such expenses should not exceed 5% of the capital employed by the Company.

Expenses incurred in the process of demerger and amalgamation can also be amortised and claimed as deduction in the same manner.

Deductions for the Purpose of ‘Specified Businesses’ –

As per Sec 35AD, 100% of the capital expenditure incurred wholly and exclusively for the purpose of ‘Specified Business’, is allowed as deduction in the previous year in which the assessee commences such business.

Waiver of Dividend Distribution Tax (DDT) –

The Dividend Distribution Tax which was earlier required to be paid by the companies is now waived off. The dividend will now proposed to be added to the taxable income of the recipients and taxed at the applicable rates. This move has waived tax burden from companies to a great extent. MNCs and foreign investors deriving dividend income from Indian businesses have benefited the most from it.

Apart from those mentioned above, there are various other tax incentives extended by the government for businesses in India. For more detailed information contact DSRV and Co. LLP, a CA firm in Gurgaon that has been in service for more than 30 years now.

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