ICLG Private Client 2019 – India
1. Connection Factors
1.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?
Factors like domicile or habitual residence have little relevance in determining tax liability in India, unless a person is considered to be a dual tax resident in India and another country. In such cases, domicile and habitual residence are relevant to determine the individuals fiscal residence as per the tie-breaker test provided in the Double Taxation Avoidance Agreements (“DTAA”) entered into by India.
1.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?
Domicile or habitual residence is not defined in the Income Tax Act, 1961 (“ITA”).
1.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?
Residence is the most relevant factor for determining a person’s tax liability in India. Indian tax residents are taxed on their worldwide income, whereas non-residents or individuals transitioning from non-resident to a resident (refer to question 1.4) are taxed only on that portion of their income sourced from India.
1.4 If residence is relevant, how is it defined for taxation purposes?
The residential status of an individual is determined in accordance with the following rules:
An individual is a resident if: i) he is present in India for 182 days or more in a financial year; or ii) he is present in India for 60 days or more in a financial year and at least for 365 days during 4 years immediately preceding the relevant financial year.
An individual is a resident but not ordinary resident (“RNOR”) if: i) he is a resident in India in the relevant financial year; and ii) he is either a non-resident in 9 out of the 10 years preceding the relevant financial year, or he is present in India for 729 days or less during the 7 years preceding the relevant financial year.
In any other case an individual is a non-resident.
1.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?
Nationality becomes relevant to relax the day count test which attracts the status of an Indian tax resident to an Indian citizen leaving the country for employment outside India, an Indian citizen residing outside India and persons of Indian origin (“PIO”) visiting India for a period of more than 60 days in the relevant fiscal year (refer to question 1.4). An Indian citizen or PIO visiting India becomes an Indian tax resident if he is physically present in India for more than 182 days in the relevant fiscal year and an aggregate of 365 days in the four years preceding the relevant fiscal year. Further, nationality also becomes relevant when invoking the non-discrimination clause in DTAAs which guarantees a foreign national tax treatment equal to that of an Indian national.
1.6 If nationality is relevant, how is it defined for taxation purposes?
Nationality per se has not been defined in the ITA. However, relevant terms ‘Indian citizen’ and ‘PIO’ have the following meaning for taxation purposes:
An Indian citizen is an individual who has acquired Indian citizenship by birth, descent, naturalisation or registration as per the provisions of the Citizenship Act, 1955. It must be noted that India does not permit dual citizenship.
An individual is deemed to be a PIO if the individual or either of the individual’s parents and/or grandparents were born in undivided India.
1.7 What other connecting factors (if any) are relevant in determining a person’s liability to tax in your jurisdiction?
India follows the source rule of taxation. Thus, income having reasonable nexus with India makes a person liable to pay tax in India or obligated to withhold and deposit tax in India, subject to any favourable tax treatment granted by DTAAs. Based on the following connecting factors some situations where Indian tax liability may be attracted are enumerated below:
|Connecting Factor||Taxable Situations|
|Situs of property|
|Nature of transaction||Income derived from business operations carried out in India is taxable to the extent attributable to India, subject to favourable tax treatment available under the DTAA.|
|Characteristics of payments||Payment made by a non-resident to another non-resident shall be subject to tax in India if such payment is taxable under the ITA.|
2 General Taxation Regime
2.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?
Estate Tax: Presently, India does not levy any estate tax on tax residents or persons becoming established in India.
Gift Tax: The Gift Tax Act, 1958 was abolished in 1998 and for a short period of time all gifts made in India were tax free. It was re-introduced in 2004 as a provision in the ITA. Gift tax as it is currently applicable seeks to tax transfers for inadequate or nil consideration in the hands of the recipient where the aggregate value of the amount received exceeds the threshold specified in the ITA. It is pertinent to note that gifts received: i) from a relative (as defined in the ITA) or a trust settled for the benefit of relatives; ii) at the time of marriage; or iii) by way of inheritance, are not subject to tax.
2.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?
Income tax: Income of a person established in India depends upon their residential status, age and category of person the tax payer is slotted as. Indian residents are liable to pay income tax on their worldwide income whereas RNORs and non-residents are taxed on the portion of income received, accruing or arising as well as deemed to be received, accrue or arise in India. Income is taxed on a progressive tax basis. A surcharge may apply if the income exceeds certain thresholds prescribed by the ITA.
Since there are several categories of tax payers and different rates applicable to them, we have only provided the tax rates applicable to a resident individual under 60 years of age below:
Income does not exceed INR 250,000
Income exceeds INR 250,000 but does not exceed INR 500,000
5% of the amount by which the total income exceeds INR 250,000
Income exceeds INR 500,000 but does not exceed INR 1 million
INR 12,500 plus 20% of the amount by which the total income exceeds INR 500,000
Income exceeds INR 1 million but does not exceed INR 5 million
INR 112,500 plus 30% of the amount by which the total income exceeds INR 1 million
Income exceeds INR 5 million but does not exceed INR 10 million
INR 1,312,500 plus 30% of the amount by which the total income exceeds INR 5 million plus surcharge at 10% of the tax payable subject to a marginal relief.
Income exceeds INR 10 million
INR 2,812,500 plus 30% of the amount by which the total income exceeds INR 10 million plus surcharge at 15% of the tax payable subject to a marginal relief.
An additional health and educational cess of 4% is payable on tax payable or tax payable increased by the surcharge as the case may be.
Capital gains tax: Concessional rates of taxation are applicable to the gains arising from transfer of capital assets depending on the nature of asset transferred and the duration for which the asset was held. An asset is a long-term capital asset if held for more than 36 months before it is transferred, and a short-term capital asset otherwise. This rule is subject to certain exceptions some of which are set out below:
Holding period to be classified as long term capital assets
Listed equity shares
(if the sale takes place on a recognised Indian stock exchange and subject to Securities Transaction Tax (“STT”))
(only on gains exceeding INR 100,000)*
12 months or more
Listed equity shares
(if the sale does not take place on a recognised stock exchange and is not subject to STT)
10% (without availability of indexation benefit) / 20%
12 months or more
24 months or more
24 months or more
* LTCG arising from the sale of listed equity shares acquired before 1st February 2018 and sold after 31st March 2018 shall enjoy a limited grandfathering benefit. While computing LTCG on transfer of such shares, the cost of acquisition shall be considered as the higher of: i) the actual cost of acquisition; and ii) fair market value of the asset or the full value of consideration received upon its transfer, whichever is lower.
2.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?
Apart from income tax, stamp duty is payable on instrument evidencing the creation, transfer, limitation or extinguishment of rights/liabilities or recording rights/liabilities of concerned parties. Stamp duty is a non-recurring direct tax payable on the execution of aforementioned instrument by the person (individuals and organisations) executing the document.
2.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?
India’s multi-layered indirect tax regimen was replaced by a comprehensive indirect tax levy – the Goods and Service Tax (“GST”) in July 2017, which is a destination-based tax levied on the supply of goods and services within India. GST subsumed most of the indirect taxes levied in India, i.e. VAT, central sales tax, service tax, excise duty, etc. however, basic customs duty, central excise duty on alcohol for human consumption, central excise/VAT on crude petroleum, high speed diesel, petrol, natural gas, aviation turbine fuel are still in effect.
2.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?
The following are some of the relevant specific anti-avoidance rules in the ITA:
Disregarding transfers to trusts: If property is settled in a trust, whether revocable or irrevocable, and the settlor or a contributor retains the power to control the trust property, the tax authorities may treat the trust as a revocable trust and the income of the trust shall be taxable in the hands of the settlor or contributor.
Expansion of the gift tax: Vide Finance Act, 2016, the gift tax provisions were made applicable to all persons receiving money or property without consideration and moveable or immovable property for inadequate consideration, subject to a threshold specified in the ITA. Transfers made to relatives (as defined in the ITA) and settlement into trusts for the benefit of relatives have been specifically excluded from the ambit of these provisions.
Dividend Distribution Tax (“DDT”) impacting shareholders and promoters of closely held companies: DDT is payable on loans and advances paid by a company to its shareholders, as such distributions are deemed to be dividends and are taxable at 30% which is higher than the rate of tax applicable to regular dividends.
2.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?
India implemented the General Anti-Avoidance Rule (“GAAR”) with effect from 1st April 2017. GAAR empowers tax authorities to deny tax benefits availed of by impermissible avoidance arrangements. An impermissible avoidance arrangement is an arrangement whose main purpose was to avail of tax benefits and which: i) creates rights or obligations not ordinarily created between persons dealing at arm’s length; ii) directly or indirectly results in the misuse or abuse of the provisions of the ITA; iii) lacks or is deemed to lack commercial substance (as defined in the ITA); or iv) is entered into or carried out by means or in a manner not ordinarily employed for bona fide purposes.
GAAR gives the tax authorities wide powers such as the ability to deny tax benefits available to a tax payer under DTAAs. Further, where an arrangement is perceived to be an impermissible avoidance arrangement it is presumed to be so unless the tax payer proves otherwise. GAAR is only applicable on arrangements where the tax benefit exceeds INR 30 million in the relevant financial year.
2.7 Are there any arrangements in place in your jurisdiction for the disclosure of aggressive tax planning schemes?
No, there are not.
3 Pre-entry Tax Planning
3.1 In your jurisdiction, what pre-entry estate and gift tax planning can be undertaken?
Since India does not levy estate taxes, pre-entry estate tax planning need not be undertaken. Gift tax is levied in India via the ITA and not a specific law. Therefore, a separate pre-entry gift tax planning is not required (refer to question 3.2).
Pre-entry planning could be undertaken from an exchange control perspective where assets and funds generated outside India while the individual was a non-resident are contemplated to be kept outside India even after the individual becomes an Indian resident. Please note that the definition of resident as per the ITA and exchange control regulations i.e. the Foreign Exchange and Management Act (“FEMA”) is not the same. As per FEMA, an individual is an Indian resident if he spends more than 182 days in India with the intention of staying in India for an indefinite period of time. Whereas, if an individual satisfies the physical presence test laid down in the ITA he is considered to be an Indian resident irrespective of his intention of stay (refer to question 1.4).
3.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?
In India residents are liable to pay tax on their worldwide income and RNORs and non-residents are liable to pay tax on their India-sourced income. Therefore, it is not necessary to undertake pre-entry income and capital gains tax planning to ensure that income generated prior to becoming resident in India in foreign jurisdiction is not subject to tax in India.
3.3 In your jurisdiction, can pre-entry planning be undertaken for any other taxes?
Customs duty and GST are the predominant indirect taxes payable by a business where the goods or services are to be consumed within India (refer to question 4.2). Therefore, pre-entry indirect tax planning with respect to import and supply of goods and services within India could be undertaken.
4 Taxation Issues on Inward Investment
4.1 What liabilities are there to tax on the acquisition, holding or disposal of, or receipt of income from investments in your jurisdiction?
Acquisition: Generally no tax is payable by a person acquiring assets with the intention of making investments, in India. Investments are generally classified as capital assets and tax in regard to capital gains is usually paid when the asset is disposed of. However, when listed shares are purchased on a recognised stock exchange STT is payable at the time of acquisition. Also when a non-resident purchases an asset from another non-resident the buyer is liable to withhold tax at the specified rate before making the payment to the seller.
Holding: Tax liability during the holding period of the investment arises in limited situations, some of which are mentioned as follows:
i. Where the asset is a share in a company on which dividend is payable, the company making the distribution is liable to deduct DDT at the time of making such distribution to the shareholder.
ii. Where the asset is real estate and it has been rented out, tax is payable at the end of the relevant financial year on the actual rent received.
iii. Where the asset is a residential house lying vacant or used periodically as a holiday home, tax is payable on the estimated annual rent that the owner would have received if the property was let out.
Disposal: Generally, tax payable on the disposal of an asset is a capital gains tax which is chargeable at a concessional rate (refer to question 2.2). Further, when capital gains arise to a non-resident, he may avail of the beneficial tax rates prescribed by the relevant DTAA.
4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?
Customs duty is levied by the Central Government on the import of goods into India. In addition to customs duty, Integrated GST is payable if imported goods are supplied within India.
4.3 Are there any particular tax issues in relation to the purchase of residential properties?
If a residential property is purchased from a non-resident, the buyer is required to withhold tax at the specified rate and deposit it with the tax authorities. A withholding tax of 1% is deductible on purchase of residential property in all other cases.
It is pertinent to consider roll-over benefits and capital gains tax exemptions specified in the ITA when re-investing in residential property. For example, where gains arising from transfer of a long-term capital asset are reinvested in residential property within the prescribed time, such gains will be exempt from tax. It is important that the consideration paid for land or building purchased must be commensurate with the value adopted for the payment of stamp duties.
5 Taxation of Corporate Vehicles
5.1 What is the test for a corporation to be taxable in your jurisdiction?
A company is liable to tax in India if the corporation is an Indian resident entity or business income of the entity has nexus with India.
Residential status: A company is a resident if: i) it is incorporated or registered in India; or ii) it has its place of effective management (“POEM”) in India.
POEM under the ITA is defined as “a place where the key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made”. These provisions are applicable to companies having turnover/gross receipts of more than INR 500 million. The Central Board of Direct Taxes (“CBDT”) has issued guidelines which specify other factors to determine POEM.
India-sourced income: Business profits of a foreign company arising from a presence in India is liable to tax in India. As per the DTAAs, such liability only arises when the foreign company has a physical presence in India i.e. a permanent establishment. The Finance Act, 2018 also seeks to tax income of foreign companies sourced from India owing to a digital presence. Thus, if a non-resident has a significant economic presence in India, it shall constitute a business connection in India and the income so generated shall be subject to tax in India.
5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?
Corporations in India are subject to the following tax liabilities:
Income tax: Depending upon whether corporations are classified as domestic companies or foreign companies, they are liable to pay income tax at the following rates:
i. A domestic company is taxed at a flat rate of 30%. However, it may be taxed at 25% where turnover or the gross receipt of the company in the financial year 2016–17 does not exceed INR 2.5 billion. Surcharge is levied at 7% on the amount of income tax if net income exceeds INR 10 million but does not exceed INR 100 million and at 12% on the amount of income tax if net income exceeds INR 100 million.
ii. A foreign company is taxed at a flat rate of 40%. Surcharge is levied at 2% on the amount of income tax if net income exceeds INR 10 million but does not exceed INR 100 million and at 5% on the amount of income tax if net income exceeds INR 100 million.
Apart from the income tax and surcharge, health and education cess is levied at 4% of income tax.
Minimum alternate tax: Domestic and foreign (subject to certain exceptions) companies are liable to pay minimum alternate tax (“MAT”). If the tax payable as ordinarily calculated is lower than 18.5% of the book profits of the company (method of calculation prescribed in the ITA), the company is liable to pay MAT equivalent to 18.5% of the book profits. The difference between the ordinary tax liability and MAT liability is available as MAT credit and can be carried forward for the succeeding 15 financial years.
Withholding taxes: Companies are liable to deduct tax at source before making payment to a non-resident which are taxable in India and payments to residents in the nature of salary, interest, royalty, etc.
5.3 How are branches of foreign corporations taxed in your jurisdiction?
Branches of non-resident companies are taxed at 40% on their India-sourced income.
6 Tax Treaties
6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?
Yes, with a view to facilitate exchange of information and promote economic relations with other countries, India has entered into approximately 96 DTAAs, 19 Tax Information Exchange Agreements (“TIEA”),8 Limited Agreements, 6 Limited Multilateral Agreements and has approximately 75 Bilateral Investment Treaties in force. Further, in accordance with the Base Erosion and Profit Shifting (“BEPS”) project, India has is a signatory (not yet ratified) to the Multilateral Instrument (“MLI”) and has declared DTAAs with 93 countries to be “Covered Tax Agreements” i.e. modified by the MLI.
The aforementioned tax treaties are also aimed at combatting double taxation of the same income by allocating taxing rights to the relevant jurisdictions. As of 2017, India has re-negotiated tax treaties with Mauritius, Singapore and Cyprus so as to tax capital gains arising from sale of shares of an Indian company in India, i.e. the source country with a view to expand the Indian tax base. Prior to the amendment, capital gains were taxed in the country of the tax payer’s residence.
6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?
DTAAs entered into by India follow a combination of the OECD Model and the UN Model. The more recent tax treaties entered into by India include service permanent establishment clauses – a provision commonly found in the UN Model tax treaties.
6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?
Apart from an inheritance tax treaty with the UK, India has not entered into estate and gift tax treaties with other jurisdictions. Owing to the abolition of estate duty in India in 1985, this treaty has limited impact.
6.4 Do the estate or gift tax treaties generally follow the OECD or another model?
This is not applicable.
7 Succession Planning
7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?
In India, law governing testamentary and intestate succession mainly depends on the nature of property. Succession of immovable property is governed by lex situs, i.e. law of the land where the property is situated and succession to immovable property is governed by the law of the land where the deceased was last domiciled. Further, where property situated in India is bequeathed under a foreign will, the ISA provides for procedural rules whereby a foreign will proved in a foreign jurisdiction need not be proved in India again. Based on evidence that the will has been duly proved in the relevant foreign jurisdiction Indian courts shall grant an ancillary probate enabling the Indian estate of the deceased to be disposed of in accordance to his will. Please note that although the will is proved in a foreign court, only Indian laws shall govern the devolution of immovable properties situated in India.
7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?
Real estate held in India is governed by Indian succession laws irrespective of the testator’s domicile (refer to question 7.1).
7.3 What rules exist in your jurisdiction which restrict testamentary freedom?
A testator has complete testamentary freedom to dispose of his property as he deems fit through a will, with the exception of a Muslim testator and a testator residing in the Indian State of Goa.
Restriction on Muslims: Succession of Muslims in India is governed by their customary personal laws. Muslims are permitted to will away only one third of their estate and the balance shall devolve as per the customary forced heirship laws.
Restrictions on Goan residents: Unless specified otherwise expressly in the will, a Goan resident is not permitted to will away more than half of his/her property. The remaining half shall compulsorily devolve on the testator’s/testatrix’s spouse.
8 Trusts and Foundations
8.1 Are trusts recognised/permitted in your jurisdiction?
Yes, trusts are recognised and permitted in India. India broadly recognises two kinds of trusts, public trusts (charitable or religious) and private (family) trusts. For the purposes of this question only private trusts have been analysed.
Private trusts may be set up either during a person’s lifetime or under his will, i.e. a testamentary trust. Property initially settled into a trust may be moveable property or immovable property; however, where the initial settled property is immovable property the instrument creating the trust must be in writing and registered. A trust may be set up in the following forms:
i. Revocable trust: Can be revoked (cancelled) at the instance of the settlor at any time during his lifetime.
ii. Irrevocable trust: Cannot be revoked (cancelled) at the instance of the settlor. An irrevocable trust shall terminate when the object or term of the trust has been completed.
Trusts are further divided into the following categories:
i. Discretionary: The Trustees have the discretion to decide from the frequency and quantum of trust fund to be distributed to the beneficiaries.
ii. Determinate: The Trustees have little to no discretion in determining the entitlement of the beneficiaries. The entitlement is fixed by the settlor at the time of settlement of the trust.
8.2 How are trusts/settlors/beneficiaries taxed in your jurisdiction?
Trusts are treated as fiscally transparent entities in India. The following is a breakdown of the tax liability of a trust:
§ Tax liability of trusts: Income of a trust is taxed in the hands of the trustee or beneficiary depending on the nature of the trust.
§ Tax liability of trustees and beneficiaries: Trustees are representative assessees of a trust and their obligation is dependant on the beneficiaries they represent. Therefore, if the beneficiaries or their shares are not specified, the income of the trust is taxable at the maximum marginal rate in the hands of the trustee, except for capital gains which is taxed at a concessional rate. Whereas, if the beneficiaries and their shares are specific, income of the trust is taxed in the hands of the beneficiaries as per the status of the relevant beneficiary.
§ Tax liability of settlors: If the trust is a revocable trust the settlor continues to be taxable on the income of the trust.
Please note that income from property settled in a trust where the beneficiaries of the trust are relatives of the settlor/contributor is not taxable in the hands of such beneficiaries.
8.3 How are trusts affected by succession and forced heirship rules in your jurisdiction?
A trust settled during the settlor’s lifetime is not affected by succession or forced heirship laws. Testamentary trusts shall be subject to the limited restrictions on testamentary freedom applicable to Muslims and residents of the state of Goa (refer to question 7.3).
8.4 Are private foundations recognised/permitted in your jurisdiction?
Private foundations are not recognised in India.
8.5 How are foundations/founders/beneficiaries taxed in your jurisdiction?
This is not applicable.
8.6 How are foundations affected by succession and forced heirship rules in your jurisdiction?
This is not applicable.
9 Matrimonial Issues
9.1 Are civil partnerships/same-sex marriages permitted/recognised in your jurisdiction?
Civil partnerships and same-sex marriages are not recognised in India. However, with respect to a man and a woman cohabiting for a longtime, the Supreme Court of India has held the following:
i. A man and woman cohabiting for a long time will be presumed as legally married under the law unless proved otherwise.
ii. A woman who has been in a civil partnership similar to a marriage is entitled to alimony.
iii. A woman living-in with a man as a civil partner has a right to reside in a shared household, whether or not she has any right or title to the property.
iv. A child born out of wedlock in a civil partnership would be conferred the status of a legitimate child and would be entitled to inheritance rights in respect of the self-acquired/personal property of the parents in accordance with the applicable personal laws.
9.2 What matrimonial property regimes are permitted/recognised in your jurisdiction?
§ Portuguese civil law as applicable in the state of Goa recognises the concept of community property wherein both spouses are considered joint owners of the property acquired during the marriage.
§ Muslim customary law recognises the concept of “mehr” or “dower” which is a sum of money or property a wife is rightfully entitled to receive at the time of marriage and in some cases, at the time of divorce.
§ Hindu law recognises the concept of “stridhan” which is property that a woman receives at the time of her marriage or at any time during her marriage. A married woman’s stridhan is recognised as absolutely her property.
§ The Married Women’s Property Act, 1874 provides that a married woman’s earnings before and after her marriage are absolutely her property.
9.3 Are pre-/post-marital agreements/marriage contracts permitted/recognised in your jurisdiction?
Pre-/post-marital agreements/marriage contracts are not expressly recognised in India. Depending on the personal and customary law applicable to the parties, courts may enforce a pre-/post-marital agreement/contract if it: i) fulfils the essentials of a valid contract (as per the Indian Contract Act, 1872); and ii) it is not opposed to public policy.
9.4 What are the main principles which will apply in your jurisdiction in relation to financial provision on divorce?
Irrespective of the applicable personal laws, generally in a divorce, a spouse is entitled to maintenance and/or alimony. Jointly owned assets may be split up or realised and the proceeds may be split equally. Further, during the pendency of divorce proceedings, a spouse is also entitled to alimony pendente lite.
10 Immigration Issues
10.1 What restrictions or qualifications does your jurisdiction impose for entry into the country?
Every person who is not an Indian citizen must hold a valid national passport or any other internationally recognised travel document establishing their nationality and identity, bearing their photograph and a valid Indian visa granted by an authorised Indian representative abroad. The type of visa would depend on the purpose of visit, i.e. diplomatic, student, business, tourist, etc. Further, an Overseas Citizen of India (“OCI”) card may be issued to persons of Indian origin or relatives of Indian citizens which permits them to enter India without requiring a visa.
10.2 Does your jurisdiction have any investor and/or other special categories for entry?
Yes, India welcomes foreign nationals undertaking to invest more than INR 100 million within 18 months or INR 250 million within 36 months through the Foreign Direct Investment route. Such foreign investors are initially granted a B-4 visa for the initial duration of 18 months or 36 months as the case may be and are eventually granted Permanent Residential Status (“PRS”) for a period of 10 years (extendable to another 10 years) with a multiple entry visa provided their investment generates employment for at least 20 Indian residents every financial year. Any foreign national may avail of this scheme to enter India as an investor provided he is not a Pakistani citizen or a third country national of Pakistani origin.
10.3 What are the requirements in your jurisdiction in order to qualify for nationality?
As per the Citizenship Act, 1955, Indian citizenship may be acquired by birth, descent, registration or naturalisation. Briefly, the procedure for acquisition of citizenship is as follows:
§ By birth: An individual born in India on or after 3rd December 2004 is considered citizen of India by birth if both the parents are Indian citizens or one of the parents is an Indian citizen and the other is not an illegal migrant at the time of the individuals birth.
§ By descent: An individual person born outside India on or after 3rd December 2004 shall be an Indian citizen, if the parents declare that the minor does not hold passport of another country and his birth is registered at an Indian consulate within one year of the date of birth or with the permission of the Central Government after the expiry of one year from the date of birth.
§ By registration: Individuals who meet the following criteria are eligible to apply for citizenship:
a. PIOs who are ordinarily resident in India for 7 years before making the application.
b. PIOs who are ordinarily resident in any country or place outside undivided India.
c. Persons who are married to a citizen of India and who are ordinarily resident in India for 7 years.
d. Minor children both of whose parents are Indian citizens.
e. Persons of full age both of whose parents are registered as citizens of India.
f. Persons of full age both or either of whose parents were earlier citizen(s) of Independent India and residing in India for 1 year immediately before making application.
g. Persons of full age and capacity who has been registered as an OCI for 5 years and residing in India for 1 year.
§ By Naturalisation: Indian citizenship by naturalisation can be acquired by a foreigner who is not illegal migrant who is ordinarily resident in India for 12 years.
10.4 Are there any taxation implications in obtaining nationality in your jurisdiction?
No, as India taxes on the basis of residence and not nationality.
10.5 Are there any special tax/immigration/citizenship programmes designed to attract foreigners to become resident in your jurisdiction?
There are no such provisions.
11 Reporting Requirements/Privacy
11.1 What automatic exchange of information agreements has your jurisdiction entered into with other countries?
Apart from DTAAs which contain clauses facilitating automatic exchange of information and entering into TIEAs with 19 countries, India has taken the following steps to enable automatic exchange of information with various countries:
§ India has ratified the Convention on Mutual Administrative Assistance on Tax Matters. Further to the ratification, India implemented the adopted the Common Reporting Standards (“CRS”) and implemented it by making necessary legislative changes in 2014.
§ India is also a signatory to the Multilateral Competent Authority Agreement.
§ India has implemented Action 13 of the BEPS project by including provisions of country-by-country reporting for large tax payers.
§ India has also signed the Inter-Governmental Agreement with the United States of America to implement the Foreign Account Tax Compliance Act (“FATCA”) and made relevant legislative changes to implement the same.
11.2 What reporting requirements are imposed by domestic law in your jurisdiction in respect of structures outside your jurisdiction with which a person in your jurisdiction is involved?
The following are the reporting requirements imposed by India with respect to structures outside India:
§ Indirect transfer of Indian assets: Subject to the conditions specified in the ITA, transfer of assets situated outside India which derive substantial value from underlying Indian assets is to be declared in accordance with the provisions of the ITA.
§ Filing of tax returns: A resident (refer to questions 1.4 and 5.1) when filing tax returns is liable to disclose foreign assets held by him in Schedule FA which forms a part of the relevant income tax return form. Assets to be disclosed include foreign bank accounts, financial interest, immovable property held abroad, foreign accounts in which individual has signing authority, offshore trusts and any other capital assets held by an Indian resident outside India.
§ Significant beneficial interest: The Ministry of Corporate Affairs early this year notified the Companies (Significant Beneficial Ownership) Rules, 2018 which provides that companies shall maintain a register of the details of every individual who himself or with others (includes resident and non-resident individuals, trusts, companies, partnership firms, etc.), directly or indirectly holds at least 10% of beneficial interest in a company or has the right to exercise significant influence or control over a company.
11.3 Are there any public registers of owners/beneficial owners/trustees/board members of, or of other persons with significant control or influence over companies, foundations or trusts established or resident in your jurisdiction?
Yes. The following are the two instances where details of persons with control over companies or trusts are maintained in the public domain:
§ The Indian Trust Act, 1882 read with the Registration Act, 1908 stipulates that the instrument creating a trust shall be registered if it is initially settled with immovable property. The details of the instrument are maintained in a register at the office of the relevant Registrar.
§ As per the Companies (Significant Beneficial Ownership) Rules, 2018, companies shall maintain a register containing information of registered and beneficial owners of shares conferring a significant beneficial interest on such shareholder (refer to question 11.2). This register is to be kept available for public inspection at the office of the relevant company.
With respect to the shares of a company being held through a trust, depending upon the nature of the trust (refer to question 8.1) the significant beneficial owner of the shares could be the settlor, the trustees, the beneficiaries or the protector, if the protector is an individual.
1. Anand Shah – Partner
2. Khushboo Damakia – Associate