Issue 20 • August & September 2013
From Dezan Shira & Associates
Trading With India
•
•
•
•
•
Sourcing From & Selling To India
Import-Export Licensing Procedures
Using Singapore As An Offshore Vehicle
Establishing A Trading Company
India’s SEZs & Tax Incentives
2013 | INDIA BRIEFING - 1
Issue 20 • August & September 2013
Introduction
Dear Friends and Clients,
Gunjan Sinha
Country Manager
Dezan Shira & Associates
Tarun Gulati
Senior Accounts Associate
New Delhi Office
Indian global trade has tripled from US$252 billion in 2006 to US$794 billion in 2012. This has been further
influenced by the increasing global awareness of India’s middle class population – some 250 million people,
a similar size to that of China’s. Growth in India has also been consistently strong as the trade figures suggest.
The United States bilateral trade with India has risen consistently in each of the past five years, as has that with
the European Union – in fact the EU is India’s largest trade partner. Furthermore, an ongoing series of economic
and investment reforms in India are changing the business environment in positive directions as never before.
Indian consumers want to buy things – domestic sales of high end products, such as Apple’s iPhones and iPads,
have risen by over 400 percent in the past year. Coupled with this phenomenon is the emergence of India
as a global manufacturing hub – Indian wages are a third of those in China, and the country is inheriting the
age demographic dividend that has powered China since the early 1990s. Today, the average age of an Indian
worker is 23 – and with a population of over a billion, India has a huge and inexpensive workforce. The country
offers not just a large domestic consumer market, but also a rich vein of product availability for global sourcing
businesses. For example, auto titan Ford has announced plans for a facility in Gujarat that will manufacture three
different vehicle types with 50 percent marked for domestic sales and 50 percent for export.
These dynamics drive India as a global trading hub, and they are the reason why we concentrate on this subject
in this issue of India Briefing. Within you will find tips for buying and selling in India from overseas, as well as
how to set up a trading company in India. India is poised to become a major global sourcing center, and we
hope this issue both educates and informs as how best to approach this growing market.
Ravikant Modi
Accounts Associate
Mumbai Office
With best regards;
Gunjan Sinha
Country Manager
Dezan Shira & Associates
India
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2 - INDIA BRIEFING | 2013
Trading With India
Contents
“Indian trade has
MC
1
4
7
0
M3
6
9
M+
2
5
8
00
p.4
Sourcing From &
Selling To India
+/%
CE/C
grown exponentially
over the past few
years. Opportunities
have never been
greater, and starting
a trading business in
India has never been
easier.
”
p.6
Import and
Export Licensing
Procedures
p.8
p.11
Establishing a
Trading Company
in India
India’s Special
Economic Zones
& Tax Incentives
Related Material From Asia Briefing*
* Material featured here is clickable on
the interactive PDF version of the magazine. Get your copy at India Briefing.
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Could India Manufacture The iPad?
Ford to Make India a Global Manufacturing Hub
An Introduction to Investment Structures in India
Using Double Taxation Agreements In Your India Investment Strategy
Additional India Resources
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Issue 18 • January 2013
Inside This Issue:
3
From Dezan Shira & Associates
7
9
India’s Taxes for
Foreign-invested
Entities
An Overview
of India’s Taxes
on Business
Current Most Popular Issue:
In this article, we give a brief
overview of India’s major taxes
and duties on business, as well
as double taxation avoidance
agreements.
Individual Income Tax
Rates and Deductions
Individual income tax (IIT )
payments are determined
by income source, residency,
amount, and other factors
India’s Tax Reforms
in 2013
The Indian Government has
tabled a measure of reforms
to be introduced to create a
more favorable environment
for foreign investment.
Scan this QR code with your
smartphone to visit:
www.india-briefing.com/news
“I ndia’s Taxes for ForeignInvested Entities”
www.asiabriefing.com/store
2013 | INDIA BRIEFING - 3
Sourcing From & Selling To India
– By Dezan Shira & Associates, Delhi Office
A
s India’s total merchandise trade tripled from US$252
billion in 2006 to US$794 billion last year, the business
of import/export with Indian firms has become much
more popular. However, the rising monetary numbers
have brought with them an increasing number of
legal and administrative reforms and considerations for import/
export-related businesses.
To introduce this issue of India Briefing, we will highlight supplier due
diligence issues, import/export regulatory updates, the importance
of tax residency certificates when selling to Indian companies and
other relevant points to consider when setting up an offshore
trading company for the India market.
Supplier Due Diligence
When conducting DD, it is wise to create a checklist of necessary
India’s Regulatory Environment - How This
Affects International Sourcing Companies
Paying attention to the most updated laws and policies in India
is extremely important as Indian laws are subject to changes
on an annual basis. For example, India’s export/import (EXIM)
Policy is updated annually each March 31st, and the subsequent
modifications, improvements and new schemes become effective
starting the following day on April 1st (India’s financial year is AprilMarch).
Also, since Indian exports and imports are regulated by Foreign
Trade Act, 1992, the Indian government has close control over such
activities and transactions – which also makes it doubly important to
conduct a thorough DD investigation and to be completely aware
of the specific issues pertinent to your business activities.
information that will allow you to make a judgment call on the
For instance, when conducting an import/export business in India,
status of your supplier and their ability to deliver as promised. These
it is important that you take note of all of the import/export related
documents may include public and private documents such as
issues associated with your business. At the very least, you’ll need
financial statements, account information, credit checks and checks
to know whether the goods to be imported are classified as either
on legal status, ownership, directors and scope of business.
restricted, canalized or prohibited; or if the goods to be exported are
classified as restricted, prohibited or only for state trading enterprises
Unlike China, India maintains an impressive public records system
(STEs) (i.e., items that can only be exported by designated STEs as
that you can use to ascertain the facts about your potential supplier.
subject to India’s EXIM policy).
As such, it is crucial that you obtain any and all information necessary
to establish that your supplier is both creditworthy and in good
You’ll also need to obtain the following documents to conduct
financial standing.
import/export activities in India:
A typical DD report contains information pertaining to the following,
• Import/export license;
at the very least:
• Customs declaration form;
• Dispatch note;
• Company and personnel information (including share capital and
taxation issues);
• Corporate structure;
• Invoice;
• Certificate of origin; and
• Any other relevant documents.
• Directors and shareholders, their interests and conflicts (if any);
• Financial information and status;
The above documents are required to import/export items to and
• Licenses, permits, approvals and specific statutory compliance;
from India, and such activities are prohibited without them.
• Any previous court orders or litigation issues against the company
in question;
You should also be aware of the relevant duties imposed on the
• Insurance – quality of insurance coverage; and
items to be imported/exported as specified by Customs Act, 1962
• Examples of previous clients, such as references.
and Customs Tariff Act, 1975. The basic customs duties vary from
5-40 percent depending on item.
An India-based professional services firm will be able to help you
with these due diligence issues.
Please also be aware that the duty rates are periodically amended
under the Finance Act. India’s HS Codes system with all applicable
tariff rates can be viewed at www.eximguru.com/hs-codes/.
4 - INDIA BRIEFING | 2013
Sourcing From & Selling To India
Selling To India
Here’s a quick visual of India’s DTAs:
International businesses looking to sell products to Indian
companies should be aware that the Indian buyer has the right to
request a Tax Residency Certificate from the overseas vendor in order
to process the related payment (s). Understanding this concept is
important as it may allow the vendor to claim additional benefits
under India’s various treaties and agreements.
Specifically, Section 90(4) of India’s Income Tax Act states: “An
assessee, not being a resident, to whom an agreement referred to in
sub-section (1) applies, shall not be entitled to claim any relief under
such agreement unless [a certificate of his being a resident] in any
In addition to India’s above-listed DTAs, it should also be noted that
country outside India or specified territory outside India, as the case
the country maintains a significant free trade agreement with the
may be, is obtained by him from the Government of that country or
Association of Southeast Asian Nations (ASEAN) that reduces tariffs
specified territory.”
on thousands of imported/exported products. This 10-member
trade bloc – which is made up of Indonesia, Singapore, Malaysia,
Tax residency certificates are issued by various national tax bureaus
Laos, Cambodia, the Philippines, Vietnam, Thailand, Myanmar and
as per their own specific format. However, the Indian government’s
Brunei – is geographically close to India and includes some of India’s
guidelines require that the following information be mentioned on
largest trading partners in Asia.
the certificate:
ASEAN also has a number of FTAs with China and multiple treaties
(i) Name of the assessee;
with other countries as well. Consequently, for an international
(ii) Status (individual, company, firm etc.);
trading company, establishing an offshore company in ASEAN is a
(iii) Nationality (in case of individual);
smart move, since doing so would give it automatic rights to claim
(iv) Country or specified territory of incorporation or registration
the free trade benefits with both India and China. The most popular
(in case of others);
jurisdiction in ASEAN for establishing these companies is Singapore.
(v) Assessee’s tax identification number in the country or specified
territory of residence
Offshore companies in Singapore are easy and inexpensive to set
(vi) Residential status for the purposes of tax;
up, and Singaporean tax rates are also low and restricted only to
(vii) Period for which the certificate is applicable; and
trade and profits generated in Singapore (i.e., if you make a profit
(viii)Address of the applicant for the period for which the certificate
on a transaction in India, you won’t be taxed again in Singapore).
is applicable.
Tax Residency Certificates can be obtained from the relevant tax
departments in the country of origin.
Using Offshore Incorporations for India Trade
Many international businesses, even small ones, use so-called
“offshore” company jurisdictions for trade purposes to take
advantage of a certain country’s regulations (e.g., lower taxes, etc.).
For example, utilizing a Hong Kong-based company for the purposes
of trading with China is advantageous due to Hong Kong’s excellent
business and financial services environment and its status as a free
port – which entitles traders to lower tax rates.
Details of Singapore Incorporations are as Follows:
Minimum Number of Shareholders: One
Minimum Number of Directors: One (Note one director must be
a Singaporean resident. Nominee services are available)
Minimum Capital Requirement: One Singapore Dollar
Set Up Timeframe: Two Days
International Banking Facilities: Yes
Singapore Corporate Tax Rate: 17%, no tax on profits earned
externally from Singapore.
Tax Treaties: Immediate qualification for all ASEAN tax treaty
benefits
The same type of structure can also be used with regard to Indian
For a complete overview of every FTA and DTA that ASEAN has inked
trade, and it should be noted that India has numerous free trade
with countries throughout the world, including India and China,
and double tax treaties in place with countries throughout the world
please see our comprehensive treaties section on ASEAN Briefing:
that can all be used to a trader’s advantage.
www.aseanbriefing.com.
For assistance with sourcing or selling to India please contact Dezan Shira & Associates at [email protected]
For assistance with establishing a trading company in Singapore please contact our Singapore office at [email protected]
2013 | INDIA BRIEFING - 5
Import and Export
Licensing Procedures
– By Dezan Shira & Associates, Mumbai Office
I
Export Policy
obtained an Import Export Code (IEC) from the regional authority.
• Restricted
ndia’s import and export system is governed by the Foreign
fat and oils of animal origin, animal rennet, and unprocessed ivory.
Trade (Development & Regulation) Act of 1992 and India’s
Export Import (EXIM) Policy. Imports and exports of all goods
are free, except for the items regulated by the EXIM policy or any
other law currently in force. Registration with regional licensing
authority is a prerequisite for the import and export of goods. The
customs will not allow for clearance of goods unless the importer has
Just like imports, goods can be exported freely if they are not
mentioned in the classification of ITC (HS). Below follows the
classification of goods for export:
• Prohibited
Import Policy
The Indian Trade Classification (ITC)- Harmonized System (HS) ,
classifies goods in three categories:
1.Restricted
2.Canalized
• State Trading Enterprise
Restricted Goods
Before exporting any restricted goods, the exporter must first obtain
a license explicitly permitting the exporter to do so. The restricted
goods must be exported through a set of procedures/conditions,
3.Prohibited
which are detailed in the license.
Goods not specified in the above mentioned categories can be freely
Prohibited Goods
imported without any restriction, if the importer has obtained a valid
These are the items which cannot be exported at all. The vast
IEC. There is no need to obtain any import license or permission to
majority of these include wild animals, and animal articles that may
import such goods. Most of the goods can be freely imported in
carry a risk of infection.
India.
State Trading Enterprise (STE)
Restricted Goods
Certain items can be exported only through designated STEs. The
Restricted goods can be imported only after obtaining an import
export of such items is subject to the conditions specified in the
license from the relevant regional licensing authority. The goods
EXIM policy.
covered by the license shall be disposed of in the manner specified
by the license authority, which should be clearly indicated in the
Types of Duties
license itself. The list of restricted goods is provided in ITC (HS).
There are many types of duties that are levied in India on imports
An import license is valid for 24 months for capital goods, and 18
and exports. A list of these duties follows below:
months for all other goods.
Canalized Goods
Basic Duty
Basic duty is the typical tax rate that is applied to goods.. The rates
Canalized goods are items which may only be imported using
of custom duties are specified in the First and Second Schedules
specific procedures or methods of transport. The list of canalized
of the Customs Tariff Act of 1975. The First Schedule contains rates
goods can be found in the ITC (HS). Goods in this category can be
of import duty, and the second schedule contains rates of export
imported only through canalizing agencies. The main canalized
duties. Most of the items in India are exempt from custom duty,
items are currently petroleum products, bulk agricultural products,
which is generally levied on imports.
such as grains and vegetable oils, and some pharmaceutical
products.
The first schedule contains two rates: Standard rate and preferential
rate. The preferential rate is lower than the standard rate. When goods
Prohibited Goods
are imported from a place specified by the central government (CG)
These are the goods listed in ITC (HS) which are strictly prohibited
for lower rates, the preferential rate is applicable. In any other case,
on all import channels in India. These include wild animals, tallow
the standard rate will be applicable. If the CG has signed a trade
6 - INDIA BRIEFING | 2013
Import and Export Licensing Procedures
agreement with the country of origin, then the CG may opt to charge
Safeguard Duty
a lower basic duty than indicated in the first schedule.
A safeguard duty is a tariff designed to provide protection to
Additional Customs Duty (Countervailing Duty)
domestic goods, favoring them over imported items. If the
government determines that increased imports of certain items are
In addition to the basic duty on imported goods, a countervailing
having a significantly detrimental effect on domestic competitors,
duty is also applicable to imported goods. The rate of duty is equal
it may opt to levy this duty on those imports to discourage their
to the rate of excise applied to goods manufactured in India. If the
proliferation. However, the duty does not apply to articles imported
article is not manufactured in India, then goods of a similar nature
from developing countries. The CG may exempt imports of any
are used to determine the correct duty amount. If there are different
article from this duty. The notification issued by CG in this regard is
rates of duty on similar goods, then the highest rates of the known
valid for four years, subject to further extension. However, the total
products will be applied to the article in question.
period cannot exceed 10 years from the date of first imposition.
Additional Duty (VAT)
Protective Duties
The CG may levy an additional duty equivalent to sales tax or VAT
In addition to safeguard duties, the CG also bolsters domestic
charged on sale/purchase in India. The rate cannot exceed 4 percent.
industries using protective duties. Should the Tariff Commission issue
However, the additional duty shall be refunded when the imported
a recommendation for a protective duty, the CG may impose on any
goods are sold if the following conditions are satisfied:
goods imported to India a protective duty to provide protection to
domestic industry.
(1) The importer pays all the custom duties;
(2) The sale invoice shall bear the indication that the credit of such
duty shall not be allowed; and
(3) Importer shall pay VAT/sales tax on the sale of these goods.
Anti-Dumping Duty
The CG may impose an anti-dumping duty if an article is imported
to India at less than its normal price, and will notify the importer if
they decide to do so. The amount of duty cannot exceed the margin
of dumping. The margin of dumping means the difference between
the export price and the normal price.
The notification issued by CG in this regard shall be valid for five
years. The period can be further extended. However, the total period
The dut y cannot exceed the amount proposed in the
recommendation. The CG may specify the period up to which
protective duty shall be in force, reduce or extend the period, and
adjust the effective rate.
Education and Higher Education Cess
The education cess, simply put, is a tax designed to fund education
and healthcare initatives. An education cess at the rate of 2 percent
and higher education cess of 1 percent are levied on the aggregate
of duties of customs. However, the aggregate of customs duties does
not include the safeguard duties, countervailing duty on subsidized
articles, anti-dumping duty, or countervailing duty equivalent to VAT.
cannot exceed 10 years from the date of first imposition.
Valuation
Countervailing Duty on Subsidized Articles
Customs duty is payable as a percentage of ‘Value’ which is known
A countervailing duty is a tariff applied to imported goods to
neutralize the effect of a subsidy from the country of origin. If any
country grants subsidies on any article to be imported to India,
whether directly from the same country or otherwise, then the CG
may impose a countervailing duty equal to or less than the subsidy
itself. However, the duty will not be imposed if the the article is
subsidized for the following reasons:
(1) Research activities conducted by person engaged in
as ‘Assessable Value’ or ‘Customs Value.’ The Value may be either (a)
‘Value’ as defined in Section 14 (1) of the Customs Act or (b) ‘Tariff
Value’ described under Section 14 (2) of the Customs Act.
Tariff Value – the Tariff Value is fixed by the Central Board of Excise
& Customs (CBEC) for any class of imported goods or export
goods. Authorities will consider the trend of value of the goods in
question while fixing tariff value. Once fixed, the duty is payable as
a percentage of this value.
manufacturing or export
(2) Assistance to disadvantaged regions in destination country
The value of imported goods for the assessment of duty is
(3) Assistance in adaptation of existing facilities to new environment
determined in accordance with the provisions of Section 14 of 1962
requirements.
and the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007. According to the rules, the assessable value
The notification issued by CG in this regard shall be valid for five
equal the transaction value of goods as adjusted for freight and cost
years and possibly subject to further extension. However, the total
of insurance, loading, unloading and handling charges.
period cannot exceed 10 years from the initial date of imposition.
2013 | INDIA BRIEFING - 7
Import and Export Licensing Procedures
In the assessable value, the following criteria are included:
• Cost of insurance
• Commission and brokerage;
The following costs are excluded from the assessable value
• Cost of container, which are treated as being one with the goods
for customs purposes;
• Charges for construction, erection, assembly, maintenance
• Cost of packing - labour or materials;
or technical assistance undertaken after importation of plant,
• Materials, components, tools, etc. supplied by buyer;
machinery or equipment;
• Royalties and license fees;
• Cost of transport after importation;
• Value of proceeds of subsequent sales;
• Duties and taxes in India; and
• Other payment as condition of sale of goods being valued;
• Types of duties on exports and imports in India are covered in
• Cost of transport up to place of importation;
the Customs Tariff Act 1975. The Act provides all the laws and
• Landing charges; and
regulations related to customs in India.
For assistance with import-export issues in India please contact Dezan Shira & Associates at [email protected]
Establishing a Trading
Company in India
– By Dezan Shira & Associates, Delhi Office
I
ndia is fast emerging as a global trade dynamo with its vast
information with regard to matters associated with foreign trade
natural resources and huge supply of skilled labor. Undertaking
agreements, which thus requires a lot of preparation time.
considerable industrial deregulation and other structural
reforms, regulators in India recognizes that strong exports are
critical for overall economic growth and poverty reduction. As
such, export-led growth has become a key driver of trade in India
– one of the most important trailblazers in the recent enormous
expansion of international trade.
Indian trade has grown exponentially over the past few years, with
exports rising at a rate well above the pace of growth of worldwide
exports. In this atmosphere, opportunities have never been greater,
and starting a trading business in India has never been easier.
Establishing a Trading Business in India
Starting an export-import business with the right strategies
Here is a short flowchart detailing the process below:
1. Establish your company following guidelines provided in
the Companies Act;
2. Apply for an Importer Exporter Code (IEC) from the relevant
regional office of the Director General of Foreign Trade
(DGFT);
3. Obtain an Import License;
4. Register with the regional office of Export Promotion
Council and relevant tax authorities, including the Sales
Tax Office and Export Credit Guarantee Corporation;
can render a business very profitable. However, the long term
success and profitability of an import business depends greatly
on the importer’s knowledge and understanding of international
5. Obtain an Export License and Certificate of Origin for export
purposes from the Chamber of Commerce; and finally
procedures in addition to a keen analysis of the foreign and
procedure-centric market in India. So, to execute a successful dive
into the pool, one must follow a time-tested and exact set of steps,
which are generally rigid and absolutely necessary.
6. Begin trading.
Registering a Company in India
Furthermore, it is important for prospective investors looking to start
In order to register any kind of company in India, the proposed
an export-import business in India to obtain all of the necessary
director(s) of the company must first apply for a Director
8 - INDIA BRIEFING | 2013
Establishing a Trading Company in India
Identification Number (DIN), which can be obtained by submitting
virtually all matters related to India’s export/import policies. Some of
an application to India’s Ministry of Corporate Affairs. To receive the
its major resources are also devoted to the execution of all foreign
number, the individual applicant must also submit his/her proof of
trade laws passed by the central government and the maintenance
residence, proof of identity and a current color photo.
of an up-to-date database of all of India’s exporters and importers.
Once the number has been obtained, the director may then begin
For all first-time exporters or importers, Indian law requires that you
the process of incorporating the company. In order to legally register
register with the DGFT – which in turn will provide your business with
and incorporate a company, an application must be filed with the
a unique IEC Number. The IEC Number is a ten-digit code required for
Registrar of Companies (ROC) of the state in which the company is
both exports and imports, and it will be checked by Indian Customs
proposed to be incorporated. Afterwards, a registration application,
during every single import/export transaction. To apply for an IEC
which should be accompanied by the names of the company’s
number, you must submit the required document – called the
directors, Memorandum of Association, Articles of Association and
“Aayaat Niryaat Form” (ANF2A) – to the nearest regional authority of
the following relevant documents, must be submitted to the ROC
the DGFT. This form can be submitted online, via post or in person.
as well. In total, the documents to be submitted include:
Further, in order to obtain the code, the entity seeking to export or
• Memorandum of Association;
import goods must submit the following items as well:
• Articles of Association;
• Company agreement, if any, which includes all individual
appointments (i.e., director, manager, etc.);
• A copy of the letter of the Registrar of Companies documents
certifying payment of prescribed registration and filing fees;
• Two passport-size photographs of the legally responsible person;
• Permanent account number (PAN);
• Current bank account number; and
• Banker’s Certificate.
• All documents evidencing directorship and company structure;
and
• Registered Office Forms and Declaration of Compliance with the
Requirements of the Companies Act.
The PAN is another ten-digit code that is necessary for many financial
transactions in India, and it can be obtained by submitting an
application accompanied by the applicant’s proof of residence and
identity. The other two documents are obtained simply by opening
When the above requirements have been fulfilled, the Registrar of
a bank account.
Companies will register the company and issue a formal Certificate
of Incorporation. Once the company has been registered and
For almost all import businesses, an IEC number is absolutely
incorporated as an Indian company, it can then begin proceedings
necessary; however, certain exceptions do exist. If you are importing
for export and import-related matters. The entire registration
items from Nepal, Myanmar (through the border), China or a small
procedure takes about three months.
number of selected ports & locations around India, then an IEC
number is not mandatory, provided that the value of individual
Registering with the Director
General of Foreign Trade
consignments does not exceed Rs. 25,000.
is the largest and most important agency concerned with the
Registering with the Export
Promotion Council
promotion and regulation of the foreign trade in India, and has
After completing your initial registration, the next step is to register
an elaborate organizational structure aimed at the facilitation of
with the Export Promotion Council (EPC). The EPC, which has
the various aspects of trade. There are two departments under the
branches all over the country and offers procedures based on
Ministry of Commerce and Industry. The first one is the Department
provincial laws, is a non-profit organization established to promote
of Commerce (DoC) and the second is the Department of Industrial
various goods exported from India in international markets.
In the Government of India, the Ministry of Commerce and Industry
Policy & Promotion (DIPP). In India, exports and imports are regulated
by the Foreign Trade (Development and Regulation) Act, 1992, which
The EPC also works closely with the Ministry of Industry and
provides the government with significant control of export-import
Commerce, acting as a platform for interaction between the
policy and procedures.
exporting community and India’s central government. Given its
function, exporters should regard the need to obtain a registration
In terms of interaction with investors, however, one of the most
and membership certificate from the EPC as paramount. In order
critical and active bodies concerned with the import and export
to apply for registration from the Council, a certified copy of the
of goods in India is the Director General of Foreign Trade (DGFT).
already-provided IEC number is required. Further, those wishing to
Operating as an arm of the Ministry of Commerce and Industry’s
register with the EPC will also be required to submit a membership
Department of Commerce, the DGFT is the agency responsible for
fee (which varies by location).
2013 | INDIA BRIEFING - 9
Establishing a Trading Company in India
Registration with Tax Authorities
It is to a company’s advantage to identify and register with all of the
relevant local tax authorities if it wishes to receive all of the possible
benefits associated with exports and imports. For instance, all goods
exported from India may enjoy exemptions from value added taxes
regulations regarding specific items. Schedule II, called Export Policy
Schedule II, deals with the regulations surrounding export policy and
other issues surrounding certain exports. Export Policy Schedule II of
the ITC-HS code contains 97 chapters, all of which provide thorough
information about export procedures and policies, and also provide
and sales taxes if properly registered.
regulatory information on different classes of export items. For
In order to enjoy the maximum level of benefits, your business
any item in Schedules I and II, the DGFT maintains an up-to-date
should register with all of the relevant authorities, such as the
regional Sales Tax Department and the Export Import Credit
Guarantee Corporation – both of which have different procedures
those wishing to find regulatory or trade-related information about
database containing codes for all items.
Should the exporter find that a license is indeed necessary for the
that vary from state to state.
product in question, then the exporter must file an application for
Additionally, if a business intends to export goods, then the business
under the Chairmanship of Export Commissioner is responsible for
must undertake to register with the relevant regional branch of the
Indian Chamber of Commerce. The major export-related function of
the Chamber of Commerce for exporters is to issue Non-Preferential
Certificates of Origin to Indian exporters, in accordance with Article II
of the International Convention Relating to Simplification of Customs
Formalities, 1923, which requires certification that the exported
the relevant license to the DGFT. The Export Licensing Committee
the consideration of such applications.
Additionally, the DGFT occasionally releases public announcements,
timed to coincide with the implementation of new laws, noting
that certain specified goods that are not included in the ITC (HS)
Classifications of Export and Import items may be exported without a
goods originated in India.
license. These announcements also detail conditions for the export of
Aside from Certificates of Origin, the Chamber of Commerce
with the relevant specified authorities, quantitative ceilings and
and other bodies also offer exporters and importers many other
promotional initiatives, some of which can be very valuable to
these items, which may include a minimum export price registration
compliance with other relevant laws, rules or regulations.
businesses unfamiliar with the local systems. For instance, once
Obtaining an Import License
the actual process of exporting goods has begun, many other
India’s import-export laws are not considered highly restrictive by
requirements must be met in order to keep India’s standards high.
any standard, and the vast majority of goods making their way in
These requirements include finding air and maritime insurance for
and out of India are license-free, making them easy to administer,
the exported products, adequate warehousing, and quality control
and profitable.
resources. The various entities set up to deal with EXIM business can
assist with these steps, and registering with them will also provide
That said, Indian customs laws do prohibit the import of certain
your business with valuable information resources and contacts
items, and they also restrict the import of certain items by way of
that may prove invaluable in getting to know the Indian market.
placing import conditions on them. To deal with such regulations,
laid out in some of these laws, the importer must apply for an
Application for an Export License
To determine whether a license is needed to export a particular
commercial product or service, an exporter must first classify the
import license, which is issued by the relevant governmental import
authorities. Without the necessary documents, imports run the
risk of being declared unauthorized – which may subject them to
item by identifying its ITC (HS) Classification.
confiscation or refusal of entry into the country.
ITC (HS), also known as Indian Trading Clarification based on a
Import licenses, which are renewable, are typically valid for
Harmonized System of Coding, is India’s chief method of classifying
items for trade and export-import operations. The ITC-HS code,
issued by the DGFT, is an 8-digit alphanumeric representing a certain
class/category of goods, which allows the exporter/importer to
follow regulations concerned with those goods.
ITC-HS codes are divided into two different sections, or “schedules.“
The first of these, ITC(HS) Import Schedule I, deals with the rules
and guidelines related to import policies, and is comprised of 21
sections in total. These 21 sections, further divided into 98 chapters,
provide detailed guidelines for classification of imported goods and
10 - INDIA BRIEFING | 2013
24 months for capital goods and 18 months for raw materials
components, consumable and spares. Further, two copies of each
import license is to be issued - one will be considered the Foreign
Exchange Control Copy, which is used to certify compensation for
the foreign seller of the goods; and the second will be presented
to the relevant customs authority for import clearance purposes.
Dezan Shira & Associates can assist with the establishment of
trading companies in India and tax planning, as well as ongoing accounting, payroll and compliance issues. Please email:
[email protected] or visit www.dezshira.com
Further Resources
India’s Special Economic Zones & Tax Incentives
Foreign investors wishing to take advantage of development zones for export related manufacturing and assembly, and obtaining tax
incentives when doing so, may consider India’s SEZs. Indian SEZs closely follow the successful Chinese SEZ model and, like China, foreign
invested businesses may be established in SEZs for the manufacturing of goods, the provisioning of services, and other activities including
processing, assembling, trading, repairing and reconditioning.
India’s SEZ sectors are classified into four types:
• Special Economic Zones for Multiple Sectors
Delhi
• Special Economic Zones for Specific Sectors
• Special Economic Zones for Free Trade and Warehousing
Kandla (Gujarat)
• Special Economic Zones for IT/ITES/Handicraft and Other Industries
Kolkata
Mumbai
Tax Incentives for Investors
Visakhapatnam
Incentives and facilities offered to units located within an SEZ can include:
Chennai
• Duty free importation of required machinery, production lines and related equipment
• Duty free import and domestic procurement of component parts as required for the final product
• 100% VAT rebates on exported India sourced components;
• Income tax breaks – depending on the scope of business and where the business is located
India has a number of SEZs located around its coastline, including Gujarat (Northwest), Mumbai (West coast), Noida (Delhi), Kolkata (Bay of
Bengal), Chennai (East Coast) and Visakhapatnam (Southeast Coast). All of these are sited close to significant ports with excellent shipping
and rail infrastructure. Common usages for SEZs are manufacturing and assembly with combined Indian and globally-sourced components,
and the final product can be sold both domestically and/or exported.
Please contact Dezan Shira & Associates’ India offices at [email protected] for more information on establishing a business in India’s
special economic zones.
?
Questions on doing business in India?
Email Dezan Shira & Associates at [email protected] or visit www.dezshira.com.
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Trading with China
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Issue 132 • March 2013
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Available in multiple languages
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From Dezan Shira & Associates
From Dezan Shira & Associates
From Dezan Shira & Associates
An Introduction to
Development Zones
Across Asia
• Understanding Development Zones in Asia
• Development Zones in China
• Development Zones in India
• Development Zones in Vietnam
• ASEAN Development Zone Round Up
Doing Business in India
(second edition)
150 page field guide
May and June 2013 | ASIA BRIEFING - 1
An Introduction
to Tax Treaties
Throughout Asia
An Introduction To
Tax Treaties Throughout Asia
Development Zones Across Asia
(includes treaties involving
(includes India, China,
ASEAN, India, & China and
Vietnam and ASEAN)
all worldwide signatories to them)
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Trading With China
• China’s Import and Export Licensing Framework
• Import-Export Taxes and Duties
• Establishing a Trading Company (FICE) in China
• Global Exports to China
• Double Taxation Agreements and Your Asian Investment Strategy
• Key Tax Rates Around Asia
• Anti-Avoidance Rules Across Asia
• Bilateral Investment Treaties
March 2013 | CHINA BRIEFING - 1
This issue and more is available under
the China section of the Asia Briefing
website.
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2013 | INDIA BRIEFING - 11
Foreign Direct Investment Advice into India and the Rest of Emerging Asia
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