In India, a wide range of programs and tax planning reforms are in place intending to boost exports, manufacturing investment, and financial services performance. With a variety of tax breaks and rate reductions as well as major automation of crucial procedures, the Indian government is likewise upgrading its foreign tax administration and policies. Beyond government initiatives, fundamental technological advancements are transforming India, allowing rural areas to take part in the development of the country thanks to improved mass connection.
India has the world’s fastest-expanding major economy, according to the World Bank, despite China’s population being predicted to surpass India’s in 2023. The rise of “Atma Nirbhar Bharat”—”Self-Reliant India”—and several efforts aimed at assisting the country in becoming a significant player in the international economy. These include financial changes that focus on distressed assets and benefit banks by helping to free up lending capital, such as the Insolvency and Bankruptcy Code and the National Asset Reconstruction Company. Investment changes make infrastructure and real estate investment trusts more accessible.
To simplify and make compliance easier for the industry, 29 current central labor laws are being consolidated under four new central labor codes that cover a variety of topics, including wages, social security benefits, occupational safety and health, working conditions, and employee relations issues.
Infrastructural development is also prioritized. The Pradhan Mantri Gati Shakti program, which was unveiled in October 2021, encourages seamless connection for individuals, commodities, and services between all modes of transportation. The National Infrastructure Pipeline, which has a budgeted outlay of roughly $1.4 trillion through 2025 and focuses on the development of infrastructure projects in sectors like aviation, telecommunication, transport, logistics, energy, water, and sanitation, supports the focus on infrastructure building as well.
INCENTIVES DESIGNED TO ATTRACT INVESTMENT
The government sponsors a variety of incentive schemes for investors to increase foreign direct investment. These consist of:
Production-Linked Incentive (PLI): This seeks to accelerate India’s development as a top manufacturing location. The central government of India pays recurrent incentives as a percentage of sales to a select group of domestic and international businesses for a predetermined time. Semiconductors and display manufacturers are among the targeted industries.
Gujarat International Finance Tec-city (GIFT): The government is also concentrating on developing India’s international financial services sector through Gujarat International Finance Tec-city (GIFT). The GIFT Special Economic Zone has the approval of Indian authorities. A brand-new smart city, GIFT/SEZ offers cutting-edge sustainable infrastructure and transportation. The city is drawing a range of IT and financial services businesses thanks to numerous tax incentives and expedited regulatory approvals.
Additionally, the Finance Minister declared in the most recent Union Budget for 2022–2023 that GIFT will henceforth permit enrolment in top-tier foreign universities and institutions. Regular domestic restrictions (apart from those set by the International Financial Services Centres Authority) will not apply to these overseas universities.
Other incentives: Individual states can also provide benefits such as stamp duty exemptions, capital interest subsidies, exemptions from electricity duties, state goods and services tax reimbursements, or a power tariff subsidy.
A TRANSFORMING TAX LANDSCAPE
The tax authorities in India are making considerable improvements to both their domestic and international tax administration. A crucial area of concentration is digitization. The implementation of electronic invoicing and the real-time submission of transaction data. Through Project Insight, a program designed to foster more collaboration and harmonization across the various authorities (such as direct tax, indirect tax, and corporate affairs), several tax and regulatory agencies are digitizing and working together.
India wants to use the shared data to direct tax audits and assessments. As an illustration, the Income Tax Transaction Analysis Centre (INTRAC) was created with an emphasis on the management, processing, quality assurance, and integration of data. For the risk assessment of taxpayer profiles and the implementation of audits, INTRAC will also utilize web-text mining and sophisticated data analytics, including artificial intelligence. Beyond these digitally-focused efforts, other focus areas of the government include:
Fast-track Bilateral Trade Agreements: These are being negotiated with countries like the United Arab Emirates, Australia, the United Kingdom, and Canada. The EU and UAE are also the subject of multilateral negotiations. India has also agreed to join the 13-nation Indo-Pacific framework proposed by the US, which also includes Singapore, Australia, and Japan. These talks cover a wider variety of topics than traditional free trade negotiations, which often concentrate on tariff-free market access. These topics include the development of digital trade, the realignment and strengthening of global supply networks, anti-corruption initiatives, and climate change.
Enabling Advance Pricing Agreements: India’s rapidly expanding APA program is also assisting businesses in achieving better tax certainty. Since its launch in 2012, the initiative has received over 1,000 applications, with about 330 deals having been finalized. With the US, Japan, UK, Netherlands, Switzerland, Singapore, and Australia among the nations with whom bilateral APAs have been successfully concluded, the initiative is recognized as playing a key role in raising India’s position in the ease of doing business index. India is now ranked 63rd globally, up from 142nd in 2014, per the World Bank.
Reforming duties and customs: The complexities of India’s duties and customs environment are being addressed by streamlining procedures and embracing technology. In addition, the country is planning to phase out more than 350 customs exemptions to support domestic manufacturing.
Enabling deferred duty payments: The government has revamped and streamlined a longstanding program allowing companies to defer import duty payments. Using the manufacturing and other operations in a bonded warehouse program, businesses can delay duty payments on imports of both raw materials/inputs or capital goods—avoiding duty entirely if the goods are ultimately exported.
Rebating state and local duties/taxes: A Remission of Duties or Taxes on Export Products program has been instituted, where exporters of goods can obtain refunds of embedded central, state, and local duties or taxes, if not already obtained under other programs. The program is based on the idea that taxes or duties reduce the attractiveness of exports, and is expected to deliver a significant impact on India’s competitiveness.
Reducing goods and services tax: Recommendations have been made to reduce the GST rate from 28% to 18% on a wide range of categories.
DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)
A pact known as the Double Tax Avoidance Agreement was signed by two nations. The agreement is struck to reduce the burden of repeated tax payments for Non-Resident India (NRIs) and to promote the country as a desirable travel destination. Although the DTAA does not allow for complete tax avoidance by NRIs, it does allow them to avoid paying greater taxes in both nations. Tax evasion cases are also decreased by the DTAA.
The DTAA agreements include a variety of sources of income, including wages from a job, business profits, dividends, interest, royalties, and capital gains, among others. These agreements lay out rules for determining which nation has the authority to tax various sorts of income.
A new Section 89A was included by the Finance Act of 2021 to help NRIs who were experiencing difficulty since their foreign retirement funds were maintained with designated nations that were subject to double taxation. The term “specified persons” refers to people who are residents of India, opened an account in a notified country while not a resident of India, and are now citizens of that nation.
An account created by a specific individual in the notified country for retirement benefits is referred to as a “notified account” and the income from one is not taxed by that country on an accrual basis but rather on a receipt basis. According to the new clause, such income shall be taxed in the way and during the year that may be specified.
CONCLUSION
The government has made several announcements that will alter India’s investment, tax, and regulatory environments in the future. The possibility of allowing Foreign Portfolio Investment (FPI) investments in unlisted debt securities as well as securitized debt instruments is being actively examined, as is the opening of the commodities market to institutional investors. We may anticipate more actions from the government in the direction of giving tax policy/regulation & its implementation the necessary direction and certainty. The government would have one opportunity in this direction with the 2017 budget. Multi-national enterprises (MNEs)would appreciate straightforward, transparent, and explicit tax rules and policies from the government in the post-base erosion and tropic shifting climate. Government initiatives like Make in India, Digital India, and other ambitious and inclusive growth-oriented programs will benefit from these beneficial actions.
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