India

India

April 04, 2005 | By Keith Martin in Washington, DC

INDIA will cut its corporate income tax rate.

The rate is currently 35%. The finance minister said in his budget message on February 28 that the rate would be reduced to 30%, but surcharges will increase from 2.5% to 10%, leaving the effective corporate rate at 33%. The changes are expected to be in effect from April 1. These are the rates for domestic corporations. Foreign corporations doing business in India will remain subject to income tax at a 40% rate.

In other news, the Authority for Advance Rulings said that a 20% withholding tax had to be collected on payments that an Indian subsidiary made to its US parent to pay for services the parent performed for the subsidiary outside India. The parent charged for the services at cost. Indian counsel advised that the parent could not opt instead to be taxed in India on a net basis and deduct its costs, which would have left it with no taxable income. The case is Timken India Limited. The rulings authority published its ruling on January 25.