1. Official Name and Language
Official Name : भारत गणराज्य (Bhārat Gaṇarājya/Republic of India);
Official Language : Hindi and English
2. Political and Administrative Structure
India is a constitutional republic and a representative democracy with a federal structure and a parliamentary system governed by the Constitution of India that came into effect on 26th January 1950.
The federal government comprises of three branches:
- Executive: The executive branch of the Indian government consists of the President, the Vice-President, and the Council of Ministers: (“Cabinet”) being its executive
committee, headed by the Prime Minister who exercise the most executive power. - Legislative: The legislature of India is a bicameral parliament. It comprises the Rajya Sabha (“Council of States”) and the Lok Sabha (“House of the People”).
- Judicial: India has a unitary three-tier independent judiciary that comprises the Supreme Court, 24 High Courts and a large number of trial courts.
3. Normal Business Structures
The Government of India has significantly and radically liberalized the foreign direct investment (FDI) policy, with the objective of providing a major boost to employment and job creation in India.
The foreign investments are regulated under the FDI policy issued by Reserve Bank of India (RBI) and this policy is generally updated every financial year. The FDI policy provides for foreign investment allowed under several sectors and are also subject to the sectoral cap limits depending upon sector to sector. The entry routes in certain permitted sectors is automatic and does not require any approval, whereas certain permitted sectors are restricted and such entry routes are governed by Government Approval Route. However, under both the routes the Investor and the entity in which the investment is made has to comply with the certain reporting regulations as specified under the FDI policy.
Measures undertaken by the Government have resulted in increased FDI inflows at US$55.46 billion in financial year 2015-16, as against US$36.04 billion during the financial year 2013-14.
Foreign companies are permitted to do business in India using any of the following corporate vehicles:
Companies
- a. Private Limited Company:
- A private company restricts its shareholders to transfer their shares and cannot invite public to subscribe to its share capital.
- b. Public Company:
- A public company allows its shareholders to transfer their shares and may invite the general public to subscribe to its shares.
- c. Unlimited Company:
- An unlimited company is a company under which the liability of all its members towards the company’s debts when being wound up is unlimited.
- d. Limited Company:
- The liability of the members of a limited company may be limited to the shares or by guarantee, which requires them to pay the company’s debts when being wound up to the amount unpaid by them on their shares or a predetermined fixed sum respectively.
- Limited Liability Partnership
- A partnership is the relation between persons who have agreed to share the profits of the business carried on by all or any one or more of them acting for all. It is the creature of a limited liability partnership agreement executed by and between the partners, and each partner shares in the profits and is liable to bear the liabilities of the partnership to the full extent of their share in the limited liability partnership. LLP is a body corporate formed and incorporated under this Limited Liability Partnership Act and legal entity separate from that of its partners. However, the liability of the partner is limited to the extent of their contribution to the LLP, except for unauthorized acts, fraud and negligence or his own wrongful act or omission. FDI is permitted under the automatic route in LLP operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.
- Joint Ventures (JV)
- A Joint Venture, a form a company or LLP (as discussed above) is a symbiotic business alliance between two or more companies whereby the complimentary resources of the partners are mutually shared and put to use. Although the JVs represents a newly created business enterprise, its participants continue to exist as separate firms. Barring the liberal foreign direct investment regulations in India, there are no separate laws for JVs and laws governing domestics companies apply equally to JVs.
- Foreign companies may alternatively set up a liaison, branch or project office:
- a. Liaison Office
- A Liaison Office is a kind of representative office which is set up to understand the business and investment environment. It is barred from taking up any commercial/industrial/trading activity and its role is limited to aggregation of information and promotion of exports/imports. It has to maintain itself out of inward remittances received from the parent company.
- b. Branch Office
- A branch office cannot carry out any retail, manufacturing or processing activities. The branch office is permitted to remit surplus revenues to its foreign parent company subject to the taxes applicable. Operations of a branch office are restricted due to limitation on the activities that it can undertake.
- c. Project Office
- A foreign company may set up a project office in India to execute a project in India pursuant to a contract with an Indian company.
4. Immigration and Employment
All persons travelling to India require a visa prior to entry, except the following:
- Indian nationals.
- Holders of Overseas Citizen of India card.
- Holders of Persons of Indian Origin card.
Business Visas are issued to visitors travelling to India to attend business meetings and negotiations, conferences and seminars. Work Authorisation is for travellers who intend to carry out work whilst in India, such as visiting business facilities and conducting classroom-style training etc. In respect of Indian Immigration, work authorisation is known as an Employment Visa (E). Employment Visas may be granted for up to one year by an embassy outside the territory of India however, any extension must be applied for in India.
Indian immigration laws have been constantly evolving and changing; mainly as a reaction to events in India and around the world in general. A few years have now elapsed since many changes were instituted to longstanding immigration policies, rules and procedures. These were mainly a reaction to some critical problems facing India, such as an increased threat to security, illegal immigrants and protectionist attitudes.
5. Real Property
Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong cannot, without prior permission of the Reserve Bank of India, acquire or transfer real property in India, other than on lease, not exceeding five years.
Foreign nationals of non- Indian origin who are residing outside India are not permitted to acquire any real property in India unless such property is acquired by way of inheritance from a person who was resident in India and further cannot transfer such property without prior permission of RBI.
A foreign company which has established a Branch Office or other place of business in India can acquire real property in India which is necessary for or incidental to carrying on such activity, subject to certain conditions.
Apart from above, a foreign national who is residing in India for more than 182 days during the course of the preceding financial year for taking up employment or carrying on business/vocation or for any other purpose indicating his intention to stay for an uncertain period can acquire real property in India.
6. The Judicial System
India has a unitary three-tier independent judiciary that comprises the Supreme Court, 24 High Courts, and a large number of trial courts. The Supreme Court exercises original jurisdiction on all cases related to fundamental rights, or disputes between the states inter se, or between states and the centre. It also has appellate jurisdiction over the judgements of all tribunals including itself. The High Courts and district level courts exercise jurisdiction over all matters of a civil nature within their territories subject to each of their prescribed pecuniary limits. There are also several specialised courts that exercise exclusive original jurisdiction each within a special field or subject matter, such as company law, co-operative societies, consumer protection, income tax, debt recovery etc.
Arbitration is also a popular means of dispute redressal in India; further, India is a signatory to the Geneva Protocol, 1923, Geneva Convention, 1927 and the New York Convention, 1959 and recognizes and enforces foreign arbitration awards of co-signatories to the said conventions.
7. Taxation
The authority of the government to levy tax in India is derived from the Constitution of India, which allocates the power to levy taxes to the Central and State governments. Taxes are of two distinct types: direct and indirect. Besides these two conventional taxes, there are also other taxes that have been brought into effect by the Central Government to serve a particular agenda.
1. Direct Tax:
- Income Tax
Income Tax is to be paid on income from any source like income from salaries, income from business, income from a house or property or other sources. The amount of tax payable as Income Tax is determined by the type of person paying such tax, the source of said income and the tax slab that the person falls under and is also subject to various deductions. The income tax rates and slabs are revised annually by the central legislature. - Corporate Tax
- Corporate Tax is the income tax that is paid by companies from the revenue they earn. It is different for foreign companies where the Corporate Tax may be 41.2% if the company has a revenue of less than INR 10 million and so on. Types of Corporate Tax include:
- Minimum Alternative Tax
Minimum Alternative Tax is a minimum tax that companies must pay. Companies involved in infrastructure and power sectors are exempt from paying Minimum Alternative Tax. - Dividend Distribution Tax
Dividend Distribution Tax is a tax levied on companies based on the dividend they pay to their investors. This tax is applicable on the gross or net income an investor receives from their investment.
- Capital Gains Tax
Capital Gains Tax is payable on difference in sale and purchase price of a capital asset/investment. It is of two types, short term capital gains from investments held for less than 36 months and long term capital gains from investments held for longer than 36 months. - Securities Transaction Tax
Securities Transaction Tax is levied on all securities traded on the Indian stock exchange. - Perquisite Tax
Perquisite Tax is levied on all the perks or privileges that employers may extend to employees.
2. Indirect Tax
Goods and Services Tax: The Goods and Services Tax represents the largest reform in India’s indirect tax structure in India’s recent history, having come into effect on 1st July 2017, and replacing several indirect taxes in India including Value Added Tax, Sales Tax, Service Tax, Central Excise Duty, Additional Customs Duty, Entertainment Tax, Octroi, Entry Tax, Purchase Tax and Luxury tax etc. It is typically payable by the supplier on the supply of goods or services or both, throughout the supply chain, while also allowing input tax credits for GST already paid.
The GST has replaced the following taxes:
- Taxes currently levied and collected by the Centre:
- Central Excise duty
- Duties of Excise (Medicinal and Toilet Preparations)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Excise (Textiles and Textile Products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Central Surcharges and Cesses so far as they relate to supply of goods and services
- State taxes that would be subsumed under the GST are:
- State VAT
- Central Sales Tax
- Luxury Tax
- Entry Tax (all forms)
- Entertainment and Amusement Tax (except when levied by the local bodies)
- Taxes on advertisements
- Purchase Tax
- Taxes on lotteries, betting and gambling
- State Surcharges and Cesses so far as they relate to supply of goods and services
Considering the federal structure of India, there are two components of GST: Central GST (CGST) and State GST (SGST). Both Centre and States simultaneously levies GST across the value chain. Tax is levied on every supply of goods and services. The GST levied by the Centre on intra-State supply of goods and/or services is called the Central GST (CGST) and that levied by the State is called the State GST (SGST). Similarly, Integrated GST (IGST) is levied and administered by Centre on every inter-state supply of goods and services.