Professional Documents
Culture Documents
Introduction
The geopolitical changes that have taken place around the world in the last few years and
the gradual changes in India’s economic policies have led to a transformation in the
bilateral relationship between India and the US which is best reflected in the vastly
increased co-operation of the two countries in political, strategic and economic spheres.
Indo-US co-operation in battling terrorism around the world is well established, as
is India’s commitment to promote globalization and democracy, to alleviate poverty both
at home and abroad and to work closely with the US to contain regionally focused armed
tension and promote global peace. Strategic co-operation between the two countries is
probably at an all time high with the much debated Indo-US nuclear deal.
In the economic sphere, waves of economic reform that swept through the Indian
economy from 1991 onwards brought a sea change in the economy as well as the global
perception of it. India started being perceived as an attractive destination for investments.
The India story comes for an interesting telling and at this point the world is witnessing a
strong, fast-growing and vibrant Indian economy, which is rapidly integrating with the
global economy.
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Electronic Aerospace and Defense equipment
Industrial explosives
Hazardous chemicals
Note – The exemption from licensing also applies to all substantial expansion of
existing units.
FDI Policy
According to the current policy, FDI is not permitted in the following sectors –
Certain sectors, namely:
• Atomic energy;
• Lottery business/gambling and betting;
• Agriculture (excluding floriculture, horticulture, seed development, animal
husbandry, pisciculture and cultivation of vegetables, mushrooms, etc.)
• Plantations (excluding tea plantation)
• Retail Trading (other than single brand retail)
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FIPB Route (Approval Route)
• In all other cases of foreign investment, where the project does not qualify for
automatic approval, as given above, prior approval is required from FIPB.
• Decision of the FIPB is normally conveyed within 30 days of submitting the
application.
• The proposal for foreign investment is decided on a case-to-case basis depending
upon the merits of the case and in accordance with the prescribed sect oral policy.
Acquisition of Shares
• An FII must be registered with SEBI and must comply with certain investment
limits. They may purchase shares and/or convertible debentures of an Indian
company under the Portfolio Investment Scheme.
• The shares/convertible debentures of an Indian company must be purchased
through registered brokers on recognized stock exchanges in India.
• Fiji’s are also permitted to purchase shares/convertible debentures of an Indian
company through private placement/arrangement.
• Foreign pension funds, mutual funds, investment trusts, asset management
companies, nominee companies and incorporated/institutional portfolio managers
or their power of attorney holders may invest In India as Fijis.
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Global Depository Receipts (Gars)/ American Depository Receipts (Adds)/
Foreign Currency Convertible Bonds (Facts)
• Indian companies listed on the stock exchange are allowed to raise capital through
GDRs/ADRs/FCCBs.
• Foreign investment through GDRs/ADRs/FCCBs is also treated as FDI.
• Issue of GDRs/ADRs does not require any prior approvals except where the FDI
after such issue would exceed the sect oral caps, in which case prior approval of
FIPB would be required.
• Issue of Facts unto USD 500 million also does not require any prior approvals
Preference shares
• Indian companies can mobilize foreign investment through issue of preference
shares for financing their projects/industries.
• Issue of preference shares is permissible only as rupee denominated instruments.
• All preference shares have to redeem out of accumulated profits/ fresh capital
within a period of 20 years as per Indian Company Law.
• Preference shares, carrying a conversion option, must comply with sect oral caps
on foreign equity. If the preference shares do not have conversion option, they fall
outside the FDI cap.
Repatriation of Capital
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Laws Governing Business in India
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Special Economic Zones (SEZ’s)
• SEZ Act and the rules framed hereunder have been notified with effect from
February 2006.
• An SEZ is an export oriented duty free enclave, which is deemed to be outside the
customs territory of India.
• 22 operational Suez’s in India and over 200 Suez’s are in various stages of
approval and development.
• 100% tax deduction for 10 years for SEZ developer.
• Exemption from dividend distribution tax for SEZ developer.
• Exemption of Sales Tax on purchases from Domestic Tariff Area for both
developer and a SEZ unit.
• Exemption from Service Tax for both developer and a SEZ unit.
• No minimum export obligation.
• A 100% permitted under the automatic route for SEZ development.
• 15 year corporate tax exemption on export profits to a SEZ unit.
• Branches of foreign companies in Suez’s are eligible to undertake manufacturing
activities.
Nanotechnology
Manufacturing
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• Single brand product retailing permitted under FDI policy.
• Multi brands are expected to get permission soon.
• Retails giants like Wal-Mart, Tosco etc are making foray in India.
• 50% FDI allowed in retail trading (Single Brand)
• Fashion lines worldwide looking to enter India market
Tourism
• India is fast emerging as one of the most enticing destinations for the global
leisure traveler.
• The tourism sector in India is expected to grow at 8 per cent per annum, in real
terms, between 2007 and 2016.
• As travelers surge into India, the demand for rooms, across segments, has
skyrocketed. Hotels in the luxury and business traveler segment are recording
nearly 100 per cent occupancy, spiraling tariffs, and a strain on capacity and
manpower.
The present government’s major policy initiatives include:
• Liberalization in aviation sector
• Pricing policy for aviation turbine fuel which influences internal air fares
• Rationalization in tax rates in the hospitality sector
• Tourist friendly visa regime
• Immigration services
• Procedural changes in making available land for construction of hotels
• Allowing setting up of Guest Houses
• 100% FDI is allowed in Tourism in India
• 100% FDI is also allowed in hotels, which includes restraints, beach resorts and
other tourist complexes providing accommodation and/or catering and food
facilities to tourists.
• Tourism related industries also include travel agencies, tour operating agencies,
units providing facilities for cultural, adventure and wild life experience to
tourists, surface, air and water transport facilities to tourists, leisure, entertainment
amusement, sport and health units for tourists and convention/seminar units and
organizations.
Outbound Tourism
• With the rise in living standards, India has become an impressive source for
outbound tourist traffic.
• Thomas Cook, Cox & Kings India Limited, Star Luxury Cruises, Queen Mary II
Cruise Liners etc have launched full fledged operation in India
• The introduction of package tours to all five continents by various travel
agencies/companies has become very popular over the past few years.
Other growth sectors
• Energy
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• Infrastructure
• Non- Banking Financial Services
• Banking
• Real Estate
• Media/Broadcasting
• Telecommunication
A Branch Office is basically an extended arm of the foreign company and can
undertake export/import of goods, consultancy, research, coordination with local
buyers and sellers and provide technical support for products sold in India,
development of software and operations related to airline/shipping business.
However, a Branch Office is not allowed to undertake manufacturing activities except
research work in which the parent company is engaged. Prior approval of Reserve
bank of India is required to set up a Branch office.
Liaison Office
• The role of such offices is limited to collecting information about the possible
market and providing information about the company and its products to
prospective Indian customers. A liaison office is not allowed to undertake any
business activity other than liaison activities in India, and therefore cannot earn
any income in India.
Project Office
Direct Tax
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• Corporate Tax – Domestic Company – 33.66%
Foreign Company – 41.82%
• Dividend Tax – Company – 16.995% (i.e. Apr 1, 2007)
Money Market Mutual Fund – 25%
• Minimum Alternate Tax
• Capital Gains
• Securities Transaction Tax
• Taxation of know how fees in the hands of Foreign Companies –
Royalties/Technical fees payable to non-residents are taxed on net basis.
• Fringe Benefit Tax (FBT)
• - ESOPs brought under FBT (i.e. Apr 1, 2007)
• Banking Cash Transactions Tax – 0.1% to apply for withdrawals over INR 50,000
• Double Tax Avoidance Agreements (Dates)
• Other Direct Tax – Wealth Tax
• Important concept – Transfer pricing and determination of arms length price
(“ALP”)
Indirect Tax
• Customs Duty
• CENVAT (Excise Duty)
• Sales Tax
• Value Added Tax
• Service Tax
• Octopi Duty/Entry Tax
• Stamp Duty
• R&D CASs
• Works Contract Tax
• Turnover Tax
• Purchase Tax
• Secondary and Higher Education CASs