doing business in india.ppt 222

8/2/2019 Doing Business in India.ppt 222

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Doing Business in IndiaSimplified


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Paras Kuhad & AssociatesDoing Business in India

Simplified


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Introduction

The geopolitical changes that have taken place aroundthe world in the last few years and the gradual changesin Indias economic policies have led to a transformationin the bilateral relationship between India and the USwhich is best reflected in the vastly increased co-operation of the two countries in political, strategic andeconomic spheres.

Indo-US co-operation in battling terrorism around theworld is well established, as is Indias commitment topromote globalization and democracy, to alleviate

poverty both at home and abroad and to work closelywith the US to contain regionally focused armed tensionand promote global peace. Strategic co-operationbetween the two countries is probably at an all time highwith the much debated Indo-US nuclear deal.


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In the economic sphere, waves of economic reform thatswept through the Indian economy from 1991 onwardsbrought a sea change in the economy as well as theglobal perception of it. India started being perceived asan attractive destination for investments. The India story

comes for an interesting telling and at this point theworld is witnessing a strong, fast-growing and vibrantIndian economy, which is rapidly integrating with theglobal economy.


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Reasons that make India anattractive investment destination

India is the worlds largest democracy with a stablepolitical environment.

India has an abundant English speaking, educated,skilled human resource base which offers its services at

far cheaper rates than that may be found in any otherdeveloping or developed country.

India is worlds leader in global outsourcing with morethan 80% of the market.

India has at this time a young population with roughly80% of its population below 45 years of age.


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The India market is made more attractive by the fastgrowing consumer-class that is markedly western in itsorientation

With favourable foreign investment policies, tax

incentives and strong economic fundamentals, Indiaoffers attractive returns to prospective investors.


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Indias Industrial PolicyThe Indian government has removed bureaucratic

controls on industry, under its liberalization policy.However, licensing and restrictions still exist in thefollowing sectors:

Two sectors reserved for public sector viz., AtomicEnergy and Railways

Five Industries in which licensing is compulsory

Distillation and brewing of alcoholic drinks

Cigars and cigarettes of tobacco

Electronic Aerospace and Defence equipment

Industrial explosives

Hazardous chemicals


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Manufacture of items reserved for Small Scale Sector.

Proposals attracting locational restrictions

GREAT OPPORTUNITIES FOR US FDI!

Note The exemption from licensing also applies to allsubstantial expansion of existing units.


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Foreign Investment inIndia

Foreign Direct Investment (FDI)

India welcomes foreign direct investment in almost allsectors. Foreigners can directly invest in India either bythemselves or as a joint venture. Moreover, theinvestment ceilings in certain sectors are gradually beingremoved.

Opportunities exist for investing in India in sectors asdiverse as tourism and infrastructure, petrochemicalsand mining technology and engineering, real estate,

biotechnology, bio-informatics and nanotechnology.India is also being seen as the global destination forR&D, engineering design and prototype developmentand a manufacturing hub for high technology products.


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FDI Policy

According to the current policy, FDI is not permitted inthe following sectors

Certain sectors, namely:

Atomic energy;

Lottery business/gambling and betting;

Agriculture (excluding floriculture, horticulture, seeddevelopment, animal husbandry, pisciculture andcultivation of vegetables, mushrooms, etc.)

Plantations (excluding tea plantation)

Retail Trading (other than single brand retail)


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FDI Policy contd.

There are two routes for FDI in India

Automatic Route

FDI is permitted under the automatic route for allitems/activities except the following-

Where the foreign collaborator has an existingventure/tie-up in India in the same field. There arecertain exceptions

investment by a Venture Capital Fund registered withSEBI;

existing joint venture has less than 3% investment byeither party;


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FDI Policy contd.

Existing joint venture is defunct or sick

Proposals falling outside notified sectoral policy/caps orsectors in which FDI is not permitted

FIPB Route (Approval Route)

In all other cases of foreign investment, where the projectdoes not qualify for automatic approval, as given above,prior approval is required from FIPB.

Decision of the FIPB is normally conveyed within 30 days ofsubmitting the application.

The proposal for foreign investment is decided on a case-to-case basis depending upon the merits of the case and inaccordance with the prescribed sectoral policy.


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Acquisition of Shares

Acquisitions may be made of an existing Indian companywhich may be either a private or a public company.

Acquisition of shares of a public listed company issubject to the guidelines of the Securities ExchangeBoard of India (SEBI)

Foreign investors looking at acquiring equity in anexisting Indian company through stock acquisitions cando so under the automatic route.

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Investment by Foreign InstitutionalInvestors (FII) An FII must be registered with SEBI and must comply with

certain investment limits. They may purchase sharesand/or convertible debentures of an Indian company underthe Portfolio Investment Scheme.

The shares/convertible debentures of an Indian companymust be purchased through registered brokers on

recognized stock exchanges in India.

FIIs are also permitted to purchase shares/convertibledebentures of an Indian company through privateplacement/arrangement.

Foreign pension funds, mutual funds, investment trusts,asset management companies, nominee companies andincorporated/institutional portfolio managers or their powerof attorney holders may invest In India as FIIs.


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Foreign Technology Transfer

Foreign technology induction is encouraged by the

Government both through FDI and through foreigntechnology collaboration agreements.

No approvals are required in respect to all those foreigntechnology agreements which involve:

a lump sum payment of up to USD 2 million royalty payable up to 5% on net domestic sales and

8% on exports, subject to a total payment of 8% onsales, without any restriction on the duration ofroyalty payments.

Note - It is permissible for an Indian Company toissue equity shares against lumpsum fee and royaltyin convertible foreign currency


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Global Depository Receipts (GDRs)/

American Depository Receipts (ADRs)/Foreign Currency Convertible Bonds(FCCBs)

Indian companies listed on the stock exchange areallowed to raise capital through GDRs/ADRs/FCCBs.

Foreign investment through GDRs/ADRs/FCCBs is alsotreated as FDI.

Issue of GDRs/ADRs does not require any priorapprovals except where the FDI after such issue wouldexceed the sectoral caps, in which case prior approval ofFIPB would be required.

Issue of FCCBs upto USD 500 million also does notrequire any prior approvals


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Preference shares

Indian companies can mobilize foreign investment through

issue of preference shares for financing theirprojects/industries.

Issue of preference shares is permissible only as rupeedenominated instruments.

All preference shares have to redeemed out of accumulatedprofits/ fresh capital within a period of 20 years as perIndian Company Law.

Preference shares, carrying a conversion option, mustcomply with sectoral caps on foreign equity. If the

preference shares do not have conversion option, they falloutside the FDI cap.


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Exchange Control Regulations of India

Exchange control is regulated under the Foreign Exchange

Management Act, 1999 (FEMA)

Foreign exchange transactions have been divided into twobroad categories current account transactions and capitalaccount transactions.

The Indian rupee is fully convertible for current accounttransactions, subject to a negative list of transactions thatare prohibited/ require prior approval.

The exchange control laws and regulations for residentsapply to foreign invested companies as well.


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Repatriation of Capital

Foreign capital invested in India is generally repatriable,along with capital appreciation, if any, after the paymentof taxes due on them, provided the investment was onrepatriation basis.


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Laws Governing Business in India

The Companies Act, 1956

Arbitration and Reconciliation Act, 1996

The Competition Act, 2002

The Foreign Exchange Management Act, 1999

Income Tax Act, 1961

Central Sales Tax, 1956

Central Excise Act, 1944

Information Technology Act, 2000

Copyright Act, 1957

Trademarks Act, 1999


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Laws Contd

Geographical Indications of Goods Act, 1999

Indian Patents Act, 1970

Designs Act, 2000

Industrial Disputes Act, 1947

Workmen Compensation Act, 1956

Employees Provident Fund Miscellaneous Provisions Act,1952

Consumer Protection Act, 1956


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Important Regulatory Authorities forForeign Investment

Secretariat for Industrial Assistance (SIA)

Foreign Investment Promotion Board (FIPB)

The Foreign Investment Implementation Authority (FIIA)

Reserve Bank of India (RBI)

Registrar of Companies (RoC)

Securities and Exchange Board of India (SEBI)

Central Board of Excise and Customs (CBEC)

Central Board of Direct Taxes (CBDT)

Authority for Advance Rulings (AAR)

Investment Commission (IC)


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Growth Sectors of economy for foreign

investmentIT and ITES

India is worlds leader in global outsourcing with morethan 80% of the market share.

Electronic Hardware Technology Park (EHTP) andSoftware Technology Park (STP) schemes.

Undertakings setup in EHTP/STP are eligible fordeduction of 100% export profits till March 31, 2009

100% FDI permitted without any prior approvals.


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Special EconomicZones (SEZs)

SEZ Act and the rules framed thereunder have beennotified with effect from February 2006.

An SEZ is an export oriented duty free enclave, which isdeemed to be outside the customs territory of India.

22 operational SEZs in India and over 200 SEZs are invarious 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 SEZunit.


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SEZ Contd.

No minimum export obligation.

A 100% permitted under the automatic route for SEZdevelopment.

15 year corporate tax exemption on export profits to a

SEZ unit.

Branches of foreign companies in SEZs are eligible toundertake manufacturing activities.


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Biotechnology and Bioinformatics

100% FDI permitted without prior approval.

100% pass through tax incentive to VCFs and FVCIs

One main reason for growth implementation of productpatent regime in India in accordance TRIPS.

Nanotechnology 100% FDI permitted without prior approval.

100% pass through tax incentive to VCFs and FVCIs


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Manufacturing

What is needed? Globalization in Indian manufacturingcapabilities by creation of dynamic manufacturing hubs in

India.

India is also being seen as the global destination for R&D,engineering design and prototype development and amanufacturing hub for high technology products.

expansion in core sectors in India such as

Steel

Chemicals and petrochemicals

Consumer durables

IT hardware and telecom

Transportation


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Retail Trading

Single brand product retailing permitted under FDIpolicy.

Multi brands are expected to get permission soon.

Retails giants like WalMart, Tesco etc are making foray

in India.

50% FDI allowed in retail trading (Single Brand)

Fashion lines worldwide looking to enter India market


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Tourism

India is fast emerging as one of the most enticingdestinations 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 luxuryand business traveler segment are recording nearly 100per cent occupancy, spiraling tariffs, and a strain oncapacity and manpower.


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Tourism contd

The present governments major policy initiatives include:

Liberalization in aviation sector

Pricing policy for aviation turbine fuel which influencesinternal air fares

Rationalization in tax rates in the hospitality sector

Tourist friendly visa regime

Immigration services

Procedural changes in making available land forconstruction of hotels

Allowing setting up of Guest Houses


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Tourism Contd.

100% FDI is allowed in Tourism in India

100% FDI is also allowed in hotels, which includesrestraints, beach resorts and other tourist complexesproviding accommodation and/or catering and foodfacilities to tourists.

Tourism related industries also include travel agencies,tour operating agencies, units providing facilities forcultural, adventure and wild life experience to tourists,surface, air and water transport facilities to tourists,

leisure, entertainment amusement, sport and healthunits for tourists and convention/seminar units andorganisations.


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Tourism Contd.

Outbound Tourism

With the rise in living standards, India has become animpressive source for outbound tourist traffic.

Thomas Cook, Cox & Kings India Limited, Star Luxury

Cruises, Queen Mary II Cruise Liners etc have launchedfull fledged operation in India

The introduction of package tours to all five continentsby various travel agencies/companies has become verypopular over the past few years.


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Other growth sectors

Energy

Infrastructure

Non- Banking Financial Services

Banking

Real Estate

Media/Broadcasting

Telecommunication


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Forms of enterprises in India

Joint Venture CompanyForeign Companies can set up their operations in Indiaby forging strategic alliances with Indian partners. A jointventure is also the preferred route for foreign investorswho wish to invest in any sector where 100% foreigndirect investment is not permitted.

Wholly Owned Subsidiary CompanyForeign companies can set up wholly-owned subsidiaryin the form of a private limited company in sectors where100% foreign direct investment is permitted under theFDI policy.


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Forms of enterprises contd

Branch OfficeA Branch Office is basically an extended arm of theforeign company and can undertake export/import ofgoods, consultancy, research, coordination with localbuyers and sellers and provide technical support forproducts sold in India, development of software andoperations related to airline/shipping business. However,a Branch Office is not allowed to undertakemanufacturing activities except research work in whichthe parent company is engaged. Prior approval of

Reserve bank of India is required to set up a Branchoffice.


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Forms of enterprises contd

Liaison Office

The role of such offices is limited to collectinginformation about the possible market and providinginformation about the company and its products toprospective Indian customers.A liaison office is notallowed to undertake any business activity other thanliaison activities in India, and therefore cannot earn anyincome in India.

Project Office

Foreign companies planning to execute specific projectsin India can set up a project office for this purpose.Conditions laid down by RBI need to be fulfilled. Theforeign entity only has to furnish a report to the RBIgiving the particulars of the project/contract.


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Tax Regime of India

Direct Tax

Corporate Tax Domestic Company 33.66%

Foreign Company 41.82%

Dividend Tax Company 16.995% (w.e.f. 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 ForeignCompanies Royalties/Technical fees payable to non-residents are taxed on net basis.


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Tax Contd

Fringe Benefit Tax (FBT)

- ESOPs brought under FBT (w.e.f. Apr 1, 2007)

Banking Cash Transactions Tax 0.1% to apply forwithdrawals over INR 50,000

Double Tax Avoidance Agreements (DTAAs)

Other Direct Tax Wealth Tax

Important concept Transfer pricing and determination

of arms length price (ALP)


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Indirect Tax

Customs Duty

CENVAT (Excise Duty)

Sales Tax

Value Added Tax Service Tax

Octroi Duty/Entry Tax

Stamp Duty

R&D Cess

Works Contract Tax


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Indirect Tax Contd

Turnover Tax

Purchase Tax

Secondary and Higher Education Cess


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doing business in india.ppt 222

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