Frequently Asked Questions

(The answers to FAQs below are drafted keeping in mind the requirements for private limited companies.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation)



Qus. 19
Does the Indian company need to be registered with the Income-tax authorities?

Answer
Yes. Every Indian company needs to obtain a Permanent Account Number (PAN) and a Tax Deduction Account Number (TAN) from the Income-tax authorities.

Qus. 20
Does India have a good tax treaty network with other countries in the world?

Answer
Yes. India has a very extensive treaty network - it has tax treaties with more than ninety countries in the world and with all major developed countries. There is a fair amount of international tax advise businesses would require on cross-border transactions.

Qus. 21
Which are the various types of transaction taxes?

Answer
The major transaction taxes are:

• VAT (on sale of goods)
• Service tax (on sale of services)
• Excise (on manufacture of goods)
• Customs (on import of goods)

Qus. 22
Is there a requirement of compulsory insurance for employees?

Answer
There is no requirement for a compulsory insurance for employees.

Qus. 23
Is there a state-run compulsory insurance scheme for employees?

Answer
There is a compulsory requirement for the employer to obtain a state-run compulsory insurance for employees if number of employees drawing salary less than Rs. 10000/- per month exceeds 10.

Qus. 24
Is there a payroll tax in India?

Answer
No. There are no payroll taxes in India. There is however a levy viz., Profession tax on the employment – this is generally deducted through the payslip and remitted to the statutory authorities by the employer.

Qus. 25
What are the types of pension schemes available for employees?

Answer
Pension schemes are known as Provident Fund in India. There is a compulsory requirement for enrolment into a state-run pension scheme if the number of employees exceeds twenty. However, companies can enroll voluntarily if the number of employees exceeds 10. Under this scheme, the employer makes a matching contribution to the fund and the employee enjoys tax breaks on his own contribution, on the employer’s contribution and on the interest earned on such contribution

Qus. 26
What are the other retirement benefits available for employees?

Answer
Apart from pension mentioned above, employees are also entitled to a Gratuity which depends on the tenure of service. Generally, if an employee renders a continuous service of 5 years or more, gratuity is payable as per a prescribed formula.

Qus. 27
Is there a compulsory requirement to pay bonus to the employees?

Answer
Yes. If the number of employers exceed twenty, company must pay bonus to those employees of their enterprise who draw monthly salary or wages less than Rs. 10,000/-, as per a prescribed formula.

Qus. 28
How do I plan for the payroll of the employees?

Answer
Different salary components can result in different Income-tax consequences to the employee. Hence, salary structure needs to be developed for the employees of Indian company keeping in mind the income-tax implications in the hands of the employees and the withholding tax obligations of the company.

Qus. 29
Is there are a compulsory requirement of a work permit for expatriates deputed or transferred to the Indian company?

Answer
Foreign nationals arriving in India for employment must hold a valid employment visa. The Indian Embassy/High Commission located in various Countries issues employment visa to foreign nationals. There are no work permit requirements to work in India.

Qus. 30
Are there any formalities to be carried out by a foreign national on landing into India on deputation or transfer?

Answer
A foreign national (excluding persons of Indian origin) landing into India on deputation or transfer, for an expected period of more than six months, needs to report to the Commissioner of Police for Foreigners Regional Registration Office (FRRO) within 14 days.

Qus. 31
What are the tax related compliances which the expatriate needs to comply with in India?

Answer
Employees are required to seek tax registration (Permanent Account Number) with the Indian Income-tax authorities upon their arrival in India. This is a one time registration which is required to be quoted in various correspondences with the tax authorities.

Employee must file a tax return with the Indian tax authorities on or before 31st July of each tax year even if all the taxes have been deducted at source.

Qus. 32
Is there a tax benefit available for an expatriate in India if he is present only for a short duration in India?

Answer
Subject to certain conditions, an expatriate deputed to India will enjoy certain tax benefits as per various tax treaties, if the period of stay does not exceed 183 days. However, under the domestic tax laws, remuneration received by an employee of a foreign company who is not a citizen of India will be exempt form tax if the period of stay does not exceed 90 days and on fulfilment of certain other conditions.

FAQ 33
What are the secretarial requirements for an Indian company?

Answer
There are various secretarial requirements for an Indian company in India, foremost amongst them are

• Holding of Board Meetings once in every three months of the calendar year
• Holding Shareholders Meeting once in a year
• Compliance with various filing requirements with the Registrar of Companies from time to time upon happening of an event such as shifting of office, change in directors, etc.
• Filing of Annual Returns with the Registrar of Companies.

Qus. 34
Is there a transfer pricing regime in India?

Answer
Yes. Under the Income-tax Act, there is a requirement of an arm’s length transactions between group companies and there are specified documents to be maintained. Under the Customs law, there needs to be comparable prices charged for imports from related parties. Under the service tax laws, there needs to be an arm’s length transaction value for the provision of services.

Qus. 35
Are there any controls on movement of foreign exchange from / to India?

Answer
Yes, India has extensive exchange control laws in place governing the cross-border transactions. Although these laws have been substantially liberalised in the past decade, they still govern various aspects of cross border transactions.