Investing in India

101 Pages·2010·3.59 MB·English

TAX AND REGULATORY
Investing in India
October 2010
kpmg.com/in
Table of contents
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1 India overview 01
2 Brief economic overview 03
3 Sector presentations 07
4 Regulatory framework for investment in India 23
5 Investment vehicles for foreign investors 29
6 Repatriation of foreign exchange 33
7 Company law 39
8 Direct taxes 43
9 Tax incentives 65
10 Transfer pricing in India 69
11 Direct taxes code, 2010 75
12 Indirect taxes 81
13 Goods and services tax 87
14 Labour laws 89
15 New visa regulations 93
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in India - 2010
INDIA OVERVIEW
01 © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in India - 2010
India is the world's largest democracy and the second fastest-
growing economy. The past decade has seen fundamental and
positive changes in the Indian economy, government policies
and outlook of business and industry.
Total Area 3.29 million square kilometers
Capital New Delhi
Population Over 1 billion
Political System and Government The Indian Constitution provides for a parliamentary democracy with a bicameral parliament and three
Head of State President
Head of Government Prime Minister
Territories There are 28 states and 7 Union territories
Languages Spoken Multilingual society with Hindi as its national language. English is the preferred business language
Literacy rate 65.4 percent
Time zone GMT + 5 1/2 hours
Currency Unit Indian Rupee (INR/Rs.)
US, UAE, Hong Kong, UK, China, Singapore, Belgium, Japan, Italy, Bangladesh, Sri Lanka, France, Netherlands, Indonesia,
Principal Markets for Exports
Saudi Arabia, Germany, Spain, Malaysia
US, China, Belgium, Switzerland, UK, Germany, Spain, Austrailia, Korea, Indonesia, UAE, Malaysia, Singapore, South Africa,
Principal Markets for Imports
Hong Kong, Italy, France, Russia, Saudi Arabia, Sweden
Country fact file
Political framework Judicial framework
• India is the world’s largest democracy • Independent judiciary
• Primacy of rule of law • Supreme Court, the apex judicial authority, is vested with powers
• Free and vocal media. to enforce fundamental rights and act as a guardian of the
Constitution.
• High Courts in every state and lower courts at the town level
• Alternative dispute resolution mechanisms to assist in the
resolution of pending cases through either arbitration or
conciliation.
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Al rights reserved. 02
Investing in India - 2010
BRIEF ECONOMIC OVERVIEW
03 © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in India - 2010
The Indian economy has witnessed phenomenal growth during the Foreign trade3
last decade. The country posted decent growth during the recent
In the last five years, India’s exports witnessed robust growth to
slowdown and is among one of the countries to lead the recovery
reach a level of around USD 185 billion in 2008–09 from USD 63
path. The growth in real Gross Domestic Product (GDP) stood at 6.9
billion in 2003–04. India’s share of global merchandise trade was
1
percent in 2009-2010 . The GDP growth projection for 2010-2011 is
0.83 percent in 2003 which rose to 1.45 percent in 2008 as per WTO
1
7.1 percent . The key drivers of India’s growth include a booming
estimates. India’s share of global commercial services export was
domestic marked by increasing consumption and a surge in
1.4 percent in 2003 which also rose to 2.8% in 2008, and at the
investment, supported by certain inherent fundamental strengths
same time, its share in goods and services increased to 1.64% in
such as favorable demographics.
2008 from 0.92 percent in 2003.
However, burgeoning inflationary pressures are posing as an area of
concern for the government. Rising inflation has led to stringent
controls in the domestic financial environment. The Reserve Bank of 4
Foreign reserves
India (RBI), India’s central bank, has given high precedence to
India's foreign exchange reserves stood at USD 283.5 billion at the
uphold price stability, contain inflation expectations and sustain the
end of December 2009 as against USD 252 billion in 2008, making it
growth momentum
the third largest stock of reserves among the emerging market
economies.
2
Transforming the domestic market
• Favorable Demographics: India, where about 50 percent of the
Mergers & Acquisitions (M&A) and Private
population is below 25 years of age, has one of the youngest
populations in the world compared to the aging populations of Equity deals (From EMIS – Emerging
the US, China, Japan, and the UK Market Information Service)
• Increased Urbanization: By 2025, due to migration and population
The total number of M&A Deals announced during the 12 months of
growth, the urban population is estimated to account for 37
2009 stands at 330 with a total announced value of USD 11.96 billion
percent of the total population. By the same time, the Indian
as against 454 deals with a total announced value of USD 30.95
consumer market is likely to largely be an urban affair with 62
billion in 2008 and 676 deals amounting to USD 51.11 billion in 2007.
percent of consumption in urban areas versus 38 percent in rural
There were 174 domestic deals in 2009-2010 (both acquirer and
India.
target being Indian) with an announced value of USD 6.70 billion and
• Rise of the Middle Class: The middle class (including aspirers),
156 cross-border deals with an announced value of USD 5.26 billion.
which, in 2005, accounted for 45 percent of total households is
expected to rise to 68 percent by 2025.
• Increased Consumption: Aggregate consumption in India is
expected to grow four-fold in real terms from USD 420.7 billion
in 2006 to USD 1.73 trillion by 2025.
1 Central Statistical Organization (CSO) 4 Directorate General of Foreign Trade
2 NCAER
3 Directorate General of Foreign Trade
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms afiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Al rights reserved. 04
Investing in India - 2010
Foreign direct investments inflows Portfolio investments in India
• India’s favorable regulatory regime continues to attract foreign • India has been a preferred emerging capital market for foreign
investment. According to the global survey of corporate capital inflows in the last decade. Net investment by Foreign
investment plans carried out by KPMG International, released in Institutional Investors (FIIs) into India touched USD 65,636 million
June 2008, India is likely to see the largest growth in its share of from April 2000 to February 20106.
foreign investment and become the world leader for investment
Capital market
in manufacturing in the next 5 years. Corporate investment
strategists from over 300 of the largest multinational companies • The Indian capital market has witnessed transformation over the
in 15 major economies participated in the survey. The results last decade and India is now placed among the most mature of
showed a move away from investment in the US, Japan, the world.
Singapore and the UAE, and a big increase in flows to Brazil, • The BSE Index has a market capitalization (as of December 31,
Russia, India and China (BRIC). 2009) of USD 13.14 trillion, the highest among major Asian
7
• Foreign direct investments (FDI) into India went up from USD economies including Japan, China, Malaysia, and Hong Kong .
4,029 million in 2000-2001 to USD 33,053 million in 2009-2010
(upto Feb ’10), one of the highest among emerging economies.
Cumulative amount of FDI inflows from April 2000 to March
5
2009 amount to USD 89, 840 million .
5 Economic Survey of India 2009-2010 7 Bloomberg
6 Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry, April 30, 2010
05 © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Investing in India - 2010
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Al rights reserved. 06
Investing in India - 2010
SECTOR PRESENTATIONS
07 © 2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.