India is the worlds largest democracy and a rising power.

India has a stable government and is one of the world's 10 fastest-growing economies. With an enviable track record of over fifty years of democracy.The Indian economy has been expanding rapidly, backed by strong domestic demand and robust industrial activity . Its economic growth is accelerating in 2011, driven by strong industrial output andrising exports, Crisil, which is the Indian unit of Standard & Poor's, expects Asia's third-largest economyto grow 8.3% in 2011. Insite of price pressures and global economic woes, capital flows have been robust.Global investors are attracted by the economy's strong growth and high interest rates. A slow economic recovery in other parts of the world makes India an even more attractive destination for investment.The federal government projects the economy will expand 8.5%-8.75% in the current fiscal year . In the IT field it has an established record and is developing Software Technology Parks which offer world-class infrastructure and various incentives and concessions to encourage foreign investment and promote software development in India. Indias foreign direct investment (FDI) rules have been substantially liberalised since the country first allowed foreign investment in the early 1990s, this has lead to a boom in the economic development of the country.The Indian growth story beckons foreign investors with promises of high returns. Tie ups with foreign companies can take a number of forms. At the basic level, it could be just a distribution or agency agreementfor the sale of goods and services. Technology transfers/ sharing is another avenue for tie ups. The most complex forms of tie ups are Joint Ventures, where risks and rewards are shared by the Indian and foreign partners in a pre agreed proportion. Corporates generally prefer the JV route.

Joint Ventures are a preferred way to enter India. In certain sectors, having a JV is a must for making an entry into India as 100% foreign investment is not allowed in those sectors. Although most sectors of the Indian economy are fully open to FDI, there are certain sectors where FDI is either capped (for example, telecoms, insurance and defence manufacturing) or totally prohibited (such as multi-brand retail, atomic energy and agriculture). (Prior government approval is also required in relation to FDI in defence manufacturing.) Other sectors, such as real estate development, are subject to certain investment criteria; if these are not met, FDI is prohibited. As a result, it is important to check the rules on foreign investment at the outset of any joint venture to confirm what is and is not permitted. FDI rules can be found on the Department of Industrial Policy and Promotion website http://dipp.nic.in. Most sectors are now open to 100% FDI. However, many foreign investors still prefer to set up a joint venture with an Indian partner company as this can, give them access to the Indian partners preestablished market and distribution channels, local management and know-how. JV offers a low risk option for entering a newer market like India. There are no separate laws for joint ventures in India. The companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies.

There are many types of Companies which can be utilized for foreign investment in India.

Foreign investors can choose between joint ventures in the private limited company format and the public limited company. The private limited company is more commonly used. The following is applicable is for joint ventures as a private limited company. The following issues arise when establishing a private limited company: Capitalisation. A private limited company requires a minimum paid up capital of INR100,000 (about EUR1,706 or US$2,270). If the company uses certain words such as India or Hindustan in its name then the minimum paid up capital requirement is INR500,000 (about EUR 8,533 or US$11,351). Minimum directors and shareholders. A private limited company requires a minimum of two directors and two shareholders. The directors need not be Indian nationals or residents. However, for practical reasons (for example, signing of routine regulatory or statutory documents), it is advisable that at least one of the directors is resident in India. If investment is taking place in an economic sector where 100% FDI is permitted, then all the shareholders of the Indian joint venture company can be foreigners. The requirement of two shareholders must be fulfilled at all times, but there are no restrictions on the proportions of equity that each shareholder holds. One shareholder can therefore hold a nominal one share. The foreign investors directors may also consider taking out specific directors and officers liability insurance. Management structure. It is important to agree the proposed management structure and to identify which party has control early in the joint venture process. Ideally, management structure, control and safeguards should be agreed when preparing the memorandum of understanding. Investing via an offshore entity. The foreign investor can route the investment via an off-shore jurisdiction with a favourable double taxation agreement, such as Mauritius. This is useful structure when one of the aims of the joint venture partners is to realise their respective investments as it allows for the minimisation of any capital gains taxes payable in respect of gains which accrue from a sale. A typical Joint Venture involves two parties, (individuals or companies), who incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash. The parties subscribe to the shares of the joint venture company in agreed proportion. The other option is for a Promoter shareholder of an existing Indian company and a third party, which may be an individual or company, one of them non-resident or both residents, collaborating to jointly carry on the business of that company and its shares are taken by the said third party. Foreign companies are also free to open branch offices in India but that attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.

Today Collaborations and tie ups with foreign companies is no longer just for the large Indian corporates. Indian SMEs are actively involved in JVs with foreign companies. JV provides the partners an opportunity to leverage their core strengths . A JV brings benefits to both parties. For example : Xerox entered India into a joint venture with Modi group which gave Xerox an early lead in the photocopier market and helped them to secure strong brand recognition. On the other hand this JV enhanced the image of Modi group. Some other examples are Sony-Ericsson a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The purpose for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile, and it has also started GSM services in some states. Why do Joint Ventures fail? The track record of Joint Ventures between Indian and foreign partners is not very positive. It is estimated that only one in five tie ups survive beyond the first five years. It is therefore important to analyze why partnerships fail and how to avoid these situations. From an Indian companys pointof view the key reasons why a tie up fails are: 1)Fear of dilution of Indian shareholding by the foreign company putting in additional funds. 2)Rigid focus on systems and processes and application of foreign standards without modifying them for local conditions . 3) Issues relating to management control and which partner will have control over what areas of the business. 4)Lack of an objective mindset by the promoters who may be either too eager or extremely suspicious about foreign companies. Indian promoters often exhibit a hangover from the times of the British Rule , i.e.foreign is better than Indian. JVs with foreigners are viewed as a status symbol! This mindset can be a veritable trap. 5) Differences in approach in relation to the drafting of documents. While documents in Western jurisdictions tend to be very detailed and prescriptive, Indian documents are usually more general and open ended in nature. Negotiations in India tend to be an ongoing activity and even after a document has been executed, Indians do not go strictly by documents and feel they can be easily be amended, this can be frustrating to their foreign counterparts.

6)A primary error occurs at the stage of deciding the form of tie up which is right for the company. A JV is often not the right option. The structure of the tie up must be thoroughly analyzed. Just sourcing of goods or technology or sale of goods and services may be the better arrangement than a JV. Selling the stake in an existing business may be a more suitable option. The appropriate solution will vary depending on the individual circumstances and the requirements of both the Indian and foreign partner. JVs have their downsides so it is important to assess whether the results justify the costs which are : a)Time wasted first in negotiating the joint venture and in understanding and aligning thinking and goals of each partner b)Decision-making takes longer c)Less freedom and flexibility d)Sharing of technology with partners raises Intellectual Property Rights and confidentiality risks. 7)Many organizations that seek global Joint Venture contracts and agreements with foreign partners mistakenly believe that the terms and conditions are about the same as domestic contracts with incountry partners. Generally, Joint Venture contracts structured with in-country partners will not work for Global Joint Ventures without significant modification. From a foreign companys stand point, the key reasons why partnerships in India fail are: 1)Inability of the Indian promoters to keep their word or live up to their commitment. Loose, inacccurate and vague statements are the bane of JVs. Often Foreign partners take the spoken word very seriously and are disappointed if commitments are not kept.

2)Involvement of family members in business decision making. Indian decision-making process can be very hierarchical, and so it is important to determine who the ultimate decision maker is and involve him in the negotiations early on. The person with power to take decisions is very often the head of the joint family. Due respect must be accorded to him and if this is not done all decisions may be voided, a great deal of time can be wasted in negotiating at the wrong level. 3)Inability to appreciate global trends and expectations in areas of quality, timelines, and customer service 4) Lack of transparency and honesty with regard to problem areas and bad news can be a source of discord. A common error Indian promoters make is to delay giving negative news. 5)Assumptions without basis can create misunderstandings. All key points need to be specifically identified, listed down, and talked through between both partners. 4)One of the reasons for a JV falling apart is due to lack of synergy for example The 40 : 60 JV between

Godrej & Boyce Mfg (India), and GE Appliances (USA) formed in 1993 was called off in 2001. At that time GE was not a known brand. The sales of high capacity refrigerators and washing machines failed to match expectations and it failed to meet the projected turn over (against a turnover projection of Rs.35 billion for the 1996-97 fiscal, the JV managed only Rs.8.13 billion in 1998-99) GE insisted on raising the stake but this was not supported by Godrej. 5)The Poor cultural integration between the two partners can lead to cross accusations. In the above case GE had alleged lack of professionalism. 6)In some cases independent access to technology or capital makes the JV redundant. This was the case in the JV between TVS Group (India) and Suzuki Motors (Japan) formed in 1983 which was called off in 2001. It became clear that the Indian side could go on without the Japanese collaborator. 7)Causes of failure of JV have been attributed to uneasy relations between the two partners, in the early 90s TVS lobbied hard against Suzuki increasing its stake in the JV company. TVS Group, for about three years, kept denying the much needed no objection certificate to Suzuki to start a new investment venture in India after the TVS-Suzuki joint venture was called off in 2001. 8)There can be conflict around changes in strategy of the partners. At times either of the partners are accused of breaching the terms of JV, creating tensions in it such as in the case of the The DanoneWadia group joint venture formed in 1995. Group Danone owned 25.5%of Britannia, Indias largest cookie maker, while the Wadia family owned 24.5%.Wadias accused Danone of using the popular Britannia brand Tiger for products outside India; not permitted as per the existing agreement between the two.Wadias objected to Danones investments in Indian bio-nutrition firm Avesthagen, based on regulations that a foreign company needs the consent of its Indian partner before pursuing business ventures in a similar area. 9) Unforseen labour problems can also lead to mounting losses such as in the case of the PAL- Peugot JV. In October 1994, Europe's 4th largest automobile major, Peugeot of France (Peugeot), entered the Indian automobile market through a joint venture. Peugeot was one of the first automobile MNCs to enter India, the early mover advantage was expected to help the company make its mark in the Indian automobile market. Peugeot was set to achieve cash breakeven within two years and to begin generating profits by 1998. Peugeot decided to enter the Indian market with its passenger car model, Peugeot 309. The JV suffered due to severe labour problems at PALs Kurla plant. PAL was reportedly unhappy with Peugeot over the indigenisation of the 309. The 309 was only 24% indigenised. This made the spare parts very expensive and the company was unable to reduce the price of the car.

So how can such events be avoided ? In the previous decades the greatest risks for International Joint Ventures came from the fact that India was a developing country and it was plagued by the problems which were faced by the early entrants into Joint Ventures. Difficulties such as limited governmental support, delays in legal enforcement, deficient and nonexistent infrastructure, limited or nonexistent intellectual property protection ,or lack of an understanding of foreign laws re security and confidentiality were commonly faced. These are now being rectified. -------

Today , India is on a fast modernization track which means better infrastructure, communications, effective laws and implementation. An example is the Information Technology Act 2000. The IT Bill brings E-commerce within the purview of law and accords stringent punishments to "cyber criminals". With this, India joins a select band of 12 nations that have cyber laws. The Government is encouraging foreign investments and the processes involved are being streamlined. The bureaucratic delays and redtape are being appreciably cut down. Repatriation of dividends and capital is now a straightforward process. Under the automatic approval route (applicable to FDIwithin the prescribed limits set by the Reserve Bank of India (RBI)), as long as the equity investment enters India through normal banking channels, and the RBIis informed in prescribed form within 30 days of the inward remittance, then repatriation is permitted without the need for any further approval. The Government stresses 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74% foreign equity in these areas receive automatic approval within two weeks. Government approval is required for higher levels of investment in other areas. Full foreign ownership (100% equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones ("EPZ's"). The Government had recently allowed foreign investment up to 51% in mining for commercial purposes and up to 49% in telecommunication sector. The Foreign Investment Promotion Board ("FIPB") provides single-window clearance to proposals. The FIPB which is the gateway and watchdog for foreign investments has been taking a stand conducive to encouraging confidence in foreign parties where disputes regarding tie-ups with Indian Companies are involved. For example , recently, the Foreign Investment Promotion Board (FIPB) ruled in favour of the foreign investors and brushed aside objections raised by Indian partners. FIPB allowed the Japanese companies Prime Polymer and Mitsui Chemicals proposal to set up a 100% subsidiary even after protests by Indian company Tipco Industries which had a technical pact with Prime Polymer. FIPB noted that the existing collaboration was sick and the exclusivity of the license ended in 2000. Accordingly, the Indian collaborator could not claim jeopardy due to technology being transferred to a third party in 2007. So Indian partners may not get away with efforts to block foreign partners from ventures here without sound reasons. The latest good news for JVs come from the relaxing of the Press Note 1 in India. Press Note 1 (PN 1), requires foreign investors to obtain prior approval in case it has an existing

financial/technical collaboration in the same field in India irrespective of sector of operation and nature of activities. The onus to provide requisite justification to the Government that the new proposal would or would not in any way jeopardize the interests of the existing partner or other stakeholders would lie equally on both. There are cases where Indian partners of failed JVs alleged to had made efforts to block foreign partners from ventures referring to PN1, without basis. For example , In 2001 Walt Disneys local partner, the KK Modi group objected to Disneys attempt to establish a wholly owned subsidiary in India similarly the Wadia Group was objecting to Groupe Danones investments in Indian bio-nutrition firm Avesthagen. The Cabinet Committee on Economis Affairs (CCEA) has relaxed the norms under Press Note 1, under which a foreign company needs to seek approval from its domestic partner in a joint venture in the country, before investing in the same sector. To further expedite the inflow of foreign direct investment (FDI), the government also decided to allow the Foreign Investment Promotion Board (FIPB) to clear projects worth up to Rs 1,200 crore (without any need to go to the Cabinet), from the existing limit of Rs 600 crore. Another significant improvement is in the protection of IPR rights. India operates a system of registration for IPR and is a signatory to various international IPR treaties. The prevailing view remains, however, that India is a high-risk area for IPR theft. The Government is pulling out the stops and is encouraging foreign investment through liberalizing and streamlining the processes involved. What should be done to avoid pitfalls ? First and foremeost it is important to carefully negotiate and draft the Agreement. Generally for entering into a JV, a documented Business Plan for the Joint Venture is essential which is agreed to in principle by both partners before commencing the partnership. A Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement. A good Joint Venture agreement is one which provides a comprehensive road map of the duties and obligations of both the parties. It minimizes complications in case of disputes. Before entering into a JV one must consider the following factors carefully : 1)Compatibility is the foremost criteria for selection of a partner. Its important to take measures to ensure a compatible work culture (something JV makers usually ignore).2) Its also worthwhile to study the organizational behavior of the partner to ensure synergies in the partner organisations. 3)Setting of clear long term goals and the terms and conditions of the JV. 4)Preempting the conflicts that may arise due to frequent changes in regulatory environment. 5)Clearly defining the role and responsibilities of each partner. 6)Maintaining transparency of operations and regular communication between the stakeholders. The plan needs to include as a minimum: Strategic purpose for the JV and a rigorous SWOTT analysis. A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model.

Strengths: characteristics of the business or team that give it an advantage over others in the industry. Weaknesses: are characteristics that place the firm at a disadvantage relative to others. Opportunities: external chances to make greater sales or profits in the environment. Threats: external elements in the environment that could cause trouble for the business. Organizations go out of business every day because they fail to recognize when they are in trouble or neglect to take actions that may allow them to survive. Trends: Look toward the future. Are newer and more effective products or services becoming available ? Organizations need to recognize that business as usual is a likely recipe for failure. For example, Kodak failed to recognize the advent of digital photography until its customer base was significantly defeated. Identification of SWOTTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTTs. If the objective is NOT attainable a different objective must be selected and the process repeated. While many new businesses seem to succeed, most fail in the first five years. This applies to JVS too. SWOTT analysis should be performed on a regular basis, in an environment in which members of the organization can take an honest, serious look at their strengths and weaknesses. SWOTT analysis can provide the JV directors with a defined focus of what needs to be addressed in order to keep their JV growing, prosperous and competitive. Some important issues to consider are : What is the investment and what is the payback time?,the target market and why should they do business with the joint venture ,Key success factors and key risks. A partnership document is necessary and it must cover : the contribution of each party to the partnership, What is it that cannot be achieved by either party alone, but can be achieved through the Joint Venture ? and the expectations of each party in the Joint Venture. A due diligence on the partner is essential. Even if this is not a formal legal or commercial due diligence, at the very minimum, references and past track record need to be checked out. Due diligence exercises are relatively rare in India, and a foreign investor may need to sell the process as standard practice in its own jurisdiction. The replies provided by the Indian partner are normally warranted by it in a subsequent joint venture agreement and possibly backed by indemnities in the event that the answers later prove to be misrepresentations. Understanding the cultural differences between the partners, Encouraging regular and open communications,mechanisms for resolving disputes (mediation/arbitration), exit options. In case of dispute, who buys whom? At what price? Professional advice is essential in joint ventures. The documentation that usually has to be put in place when establishing a joint venture company in India includes: Memorandum of understanding. The foreign investor and Indian partner need to establish a clear understanding of each others objectives for the venture and ensure that they are compatible. The

memorandum of understanding (sometimes called the letter of intent or heads of agreement) can help to achieve this. It should be prepared carefully, with thorough discussion and mediation between the parties. The memorandum of understanding should usually address: the parties intentions and likely progression of the venture; commercial terms (such as contributions to the joint venture) in enough detail to ensure that any differences can be identified early in the process; management, control and safeguards; division of early costs; exclusivity arrangements; the extent to which the memorandum of understanding is to be legally binding. Joint venture or shareholders agreement. The joint venture agreement establishes the relationship between joint venture partners and the way in which the company will be run. The most important areas to protect through an international Joint Venture agreement are security and confidentiality, legal compliance, fees and payment terms, proprietary rights, auditing rights and dispute resolution process. The legal systems in some countries might claim jurisdiction over any agreement regardless of which system the agreement specifies, and that other legal systems may not consider intellectual property rights. Before finalizing an Joint Venture Agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties. A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers and consultants in joint ventures. The Constitutional documents must be carefully drafted. These are the memorandum and articles of association. The articles of association is a binding legal document that formalises the constitution of the new company. It should mirror the commercial and technical terms of the joint venture agreement. Consistency between the two documents is important. In the event of any dispute between the articles of association and the joint venture agreement, the articles prevail.

It is important to discuss the mechanism for resolving disputes. This is often ignored in the optimism accompanying the new deal. It is necessary to have an exit clause and to look at protecting confidentiality and privacy even after termination and exit. The Dispute Resolution Mechanism is an important clause due to the fact that Litigation in India is often a tedious and slow process. As a result, many foreign investors prefer to have an arbitration or alternative dispute resolution clause in their joint venture agreement. The relevant legislation for both international and domestic arbitrations is the Arbitration and Conciliation Act 1996. The act gives flexibility to conduct arbitration in various

jurisdictions and the awards passed in a foreign jurisdiction are recognised and enforceable in India.Time limits,Location of Arbitration, Number of Arbitrators are all to be considered in the Arbitration clause. Interim measures/Provisional Remedies,Privacy Agreement,Non-compete Agreement,Confidentiality Agreement and the Applicable law are all important considerations. Other important clauses and considerations are : Force Majeure Holding shares Transfer of shares Board of Directors General meeting. CEO/MD Management Committee Important decisions with consent of partners Dividend policy Funding Access. Change of control Non-Compete Confidentiality Indemnity Assignment. Break of deadlock Termination Security and confidentiality Legal compliance Fees and payment terms Proprietary rights

Auditing rights Events of Defaults and Addressing Rules Applicable Appeal & Enforcement Be aware of local peculiarities Survival terms after the termination of the Joint Venture agreement. shares; management structure; withdrawal rights; competition issues; dispute resolution; IPR; A foreign investor should conduct an audit to identify what, if any, of its IPR will be exposed to the Indian market, and then consider whether it is worth protecting. any warranties or indemnities. Some ancillary agreements : Registered User Agreement - IPR Steps that can be taken by a foreign investor to protect its IPR include registration and the making of specific provision in the joint venture agreement. Separate documentation ancillary to the joint venture agreement may also be executed, such as a name and logo licence agreement (also known as a Registered User Agreement). Technology licence and know-how agreement (if there is a technology and know-how transfer involved). Directors service agreements. Corporate governance and policy manual. Other agreements commonly negotiated include those relating to supply, distribution, secondments and confidentiality.

The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period. Every Joint Venture agreement should be modified as applicable under different circumstances. It is advisable to utilize litigation and joint venture consultants in such agreements. Often litigating lawyers have a better idea of possible areas where litigation could start. International Joint Ventures are legally complex and many companies are not aware of the problem areas. Government Approvals for Joint Ventures ... All the joint ventures in India require governmental approvals, if a foreign partner or an NRI or PIO partner is involved. The approval can be obtained from either from RBI or FIPB. In case, a joint venture is covered under automatic route, then the approval of Reserve bank of India is required. In other special cases, not covered under the automatic route, a special approval of FIPB is required. To summarize, Joint Ventures and Partnerships are like marriages and require commitment, patience, understanding and compromises by both partners. The planning phase is important and clarity on the terms and conditions may take time to be achieved between parties. Joint Ventures are difficult to dissolve and cost a lot, in terms of time and money. It is important that Indian promoters are not discouraged by the failures. If they are done properly, Joint Ventures can be hugely rewarding for both partners. Company formation The process of company formation in India is a complex process which can take upto eight weeks to incorporate a private limited company. The main steps are : Reserving a company name with the Registrar of Companies. Drafting constitutional documents (the memorandum and articles of association) (see below, Documents) and submitting them before the Registrar of Companies for scrutiny. Submitting various prescribed forms (for example, the registered address form). Liaising with the Registrar of Companies. Obtaining the certificate of incorporation. Following this, some further steps to be taken include: Online registration of prospective directors. Opening a bank account. Applying for a permanent account number.

 Issuing share certificates, and informing the RBI of the investment. Arranging for the seal of the company or rubber stamp. Holding an initial board meeting and passing resolutions. Maintaining a register of members. Regulatory licences and registrations After establishment, the company needs to obtain various licences and registrations including: Shops and establishment licence. Value added tax (VAT) and sales tax registration. Permanent account number and tax deduction account number. If the business of the joint venture involves the importation of equipment from abroad, an import and export licence is also required. For manufacturing units in India, various industrial approvals based on national and state regulations are also required. These approvals are dependent on the precise nature and location of the activity such as environmental clearances. Employees Contracts of employment for white-collar employees are generally governed by the Indian Contracts Act. The hiring and firing of staff is therefore normally subject to the terms of the contract rather than any employment legislation. Provident Fund payments and gratuity payments are, however, governed by statutes. In respect of blue-collar workers, more stringent employment laws apply. The governing legislation includes: The Child Labour (Prohibition and Regulation) Act 1986. The Employees Provident Fund and Miscellaneous Provisions Act 1952. Industrial Disputes Act 1947. The Maternity Benefit Act 1961. Minimum Wages Act 1948. Payment of Bonus Act 1965. Payment of Gratuity Act 1972.

 Payment of Wages Act 1936. Payment of Wages (Amendment) Act 2005. Factories Act 1948. Employees State Insurance Act 1948. Taxation and duties A company incorporated in India, irrespective of whether it is wholly or partially owned by a foreign company, is considered to be a domestic company for the purposes of income tax. The current rate of corporate income tax, including a temporary surcharge, is effectively 33.66%, subject to allowances. Some other taxes that may impact include: Dividend distribution tax. Withholding tax. Service tax. VAT/central sales tax. Excise duty. Import duty. Octroi (a border tax imposed on goods being transferred between Indian states).

Double taxation agreements India has entered into Double Taxation Avoidance Agreements (DTAAs) with numerous countries including the UK and the US. The DTAA between the UK and India, for instance, provides for various tax benefits including lower rates of capital gains and withholding tax. In addition, India has entered into a more favourable double taxation agreement with Mauritius. Under normal circumstances, the proceeds of a sale of shares in an Indian company are usually taxed in India, even if the seller is not tax resident in India. However, under the India-Mauritius tax treaty, no capital gains tax in either India or Mauritius is payable on the sale of the shares of an Indian company by a Mauritian company. While there is a lower tax rate on dividends for Mauritius tax residents under the treaty, corporate dividends declared by an Indian company are presently not taxed in the hands of the recipient on payment of a dividend tax by the Indian company declaring the dividend. This dividend tax rate currently stands at 14.02%, although under the recently introduced Finance Bill this would increase to 16.99%.