Impact Of Indian 2010-11 Budget On Us Companies
General Performance of India:
Year 2009 had been a global economic slowdown in most of the advanced countries except for few developing countries like India which estimates a GDP growth for the Fiscal Year 2009-10 to be 7.20%, up 50 basis points from the previous year with biggest credit going to Manufacturing sector. India was successful in retaining its Foreign Direct Investment (FDI) at the same level as in the earlier period in spite of global slowdown. India is aggressively aiming to cross the double digit growth barrier and target for 9-10% GDP growth rate in 2010-11. Thus it becomes important for US and other global companies to know about the policies or tax changes that can affect business with India.
- Major Highlights Of India Budget That Impacts Global Stakeholders:
The new provision enables small businesses with a net operating loss in 2008 or 2009 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. Small businesses with large losses may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns
1. Foreign Direct Investment :
a) Complete liberalization of pricing and payment of technology transfer fee, trademark, brand name and royalty payments. These payments can now be made under the automatic route.
b) Attempt is made to consolidate all the prior regulations and guidelines into one comprehensive document. This would enhance clarity.
2. Exports and Software Export Zone (SEZ):
a) Indian Government has proposed interest subvention of 2%, where they bear a part of the interest burden, to ease the woes of the exporters on account of unanticipated and steep Indian currency appreciation against the USD..
3. Technology Sector:
a) Minimum alternative tax (MAT) has been raised from 15% to 18% for fiscal year 2010-11
b) Tax holidays for Software Technology Parks in India which is coming to an end in March 2011 is not extended in this Budget. Top Indian IT companies like Tata Consultancy Services(TCS) expects their effective tax rate to go up by 19% from current 15% due to non extension of tax holidays.
c) NASCOM lowered its forecast by 7-8% for Indias software and services exports for 2010/11 to $56-57 billion.
4. Direct Tax Reform:
a) Research and Development- Weighted deductions on approved in-house R&D facility is proposed to increase from 150% to 200% and approved contribution made to scientific research associations has increased from 125% to 175%.
b) All business with revenues exceeding $125K are required to audit their accounts. Yes, even a small business needs to get audited.
c) Converting small companies to LLP will not attract capital gain tax.
d) It is proposed that income by way of interest, royalty or fees for technical services of a non resident shall continue to be deemed to accrue or arise in India as long as the services are utilized in India even if the nonresident has not rendered services in India.
5. Service Tax:
a) Process of refund of accumulated credit to exporters of services especially in the area of Information Technology and Business Process Outsourcing made easy.
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Delhi High Court recently held that the obligation to withhold taxes on the money transferred to Non Resident arises only if the payment is taxable in India contrary to other High Court ruling which requires mandatory withholding of taxes on all foreign payments unless an exemption is received. This decision is obviously welcomed by the corporate world but we are yet to see what Supreme Court final ruling says!!!.
For more guidance or assistance with international tax strategy, please contact : neetika@accelero-corp.com..
by: CPA Neetika Maheshwari
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