Income Tax Norms for Wholly Owned Subsidiary Company in India
Every wholly owned subsidiary company registered in India is a tax resident and they would have to pay tax in India on its global income no matter whether the tax have been paid of its parent company in the home country on its profits. If the Indian Subsidiary company is an `associated enterprise’ as per section 92A of the Income Tax Act than the provisions concerning arm length pricing on its international transactions will be applicable.
To facilitate globalization of economic activities India is reforming its tax policies. In India for foreign companies, corporate tax rate is 40% and for domestic companies and LLP tax rate is 30%. On account of various deductions and exemptions available under the tax laws, net tax rate is lower. Special Economic Zones set up to make industry globally competitive, tax holidays are available there. Special tax treatment/holidays are enjoyed by Infrastructure Sector Projects. As there is an electronic filing of documents, a user friendly tax administration has been introduced by the authority.
Transfer Pricing Norms
Transfer pricing regulations are applicable on Wholly Owned Subsidiary Company in India. Simply transfer pricing is the comparison of transaction price of associated or holding company with the industry margin and the difference would be taxed to arrive at the Arm's length price.
FDI (Foreign Direct Investment) Norms
In almost all sectors including service sector, FDI is allowed under automatic route, except few sectors where FDI is not permitted beyond a ceiling.
For FDI, under the Automatic Route, prior approval of RBI is not required only information is required to be given to RBI.
In certain cases of FDI, government Approvals might be required. On the recommendations of the Foreign Investment Promotion Board (FIPB), FDI not covered under the 'Automatic Route' requires Governmental Approval.
FDI Restricted Sectors
FDI is not permitted in following areas:
- Atomic Energy
- Atomic Minerals
- Postal Service
- Gambling and Betting
- basic Agriculture or plantations activities or Agriculture (excluding Floriculture, Horticulture
- Seeds Development
- Animal Husbandry
- Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and
- Plantations (other than Tea plantations).
Indian Subsidiary Company Annual Compliances
Indian Subsidiary Companies are required to comply with Income Tax Act, Companies Act, transfer pricing guidelines and FEMA guidelines. From time to time, they had to file income tax return with the Income Tax Department, annual return with the Registrar of Companies and other mandatory filings with the Reserve Bank of India or Securities & Exchange Board of India (SEBI). They would also have to comply with other regulations such as TDS regulations, GST regulations and ESI regulations etc. The requirement is also based on the type of industry, number of employees and turnover.
Post Wholly Owned Subsidiary Company Registration Requirements
Here are the steps which will be followed after registration:
Step1: Subscription amount remittance in India within the period of 2 months of incorporation from the foreign country bank account to the bank account in India.
Step 2: The next step is to obtain FIRC & KYC docs from the Bank.
Step 3: Filing of Advance Reporting form along with KYC & FIRC with the RBI within the period of 30 days of receipt of funds.
Step 4: After this, share allotment immediately after reporting and time to time follow up from bank.
Step 6: Issuance of share certificates