In 2005, Value Added Tax (VAT) replaced sales tax in India. The standard VAT rate is 12.5%. However, there are still states in India using sales taxation.
If your company reaches an annual turnover of Rs500,000 you need to register for VAT. Tax returns can either be filed monthly or quarterly.
For Indian companies, the corporate income tax rate is 30%. Companies with a gross annual turnover of more than ten million Rupees have to pay a ten per cent surcharge.
Foreign companies generally have to pay 40% incorporate tax. In addition, a three per cent education charge is due on corporate income tax in India. Therefore, actual tax rates are 30.9% for Indian companies and 41.2% for foreign companies.
There are many tax incentives for companies in the Indian export sector. They include duty-free imports of components and raw materials, and tax holidays of up to five years. There are also tax exemptions available on export earnings.
Non-export oriented companies can profit from tax incentives as well. Since they’re subject to varying and constantly changing regulations, you should check these incentives on a regular basis.
Income tax is payable on the total income earned in the previous year. For an overview of Indian income tax, see our article on income tax in India .