India is the second most populous country and the largest democracy in the world. The far reaching and sweeping economic reform undertaken since 1991 have unleashed the enormous growth potential of the economy. There has been a rapid, yet calibrated, move towards deregulation and liberalisation, which has resulted in India becoming a favourite destination for foreign investment. The mood is upbeat and the signals strong. Undoubtely India has emerged as one of the most vibrant and dynamic of the developing economies. According to some experts, the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India GDP to rise (from 6 per cent to 11 per cent in 2025), and hence India will emerge as the third pole in the global economy.
Indian Economy experienced a GDP growth of 9.0 percent during 2005-06 to 9.4 percent during 2006-07. By 2025 the India's economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.
Why Invest In India
There are several good reasons for investing in India.
- One of the largest economies in the world.
- Strategic location - access to the vast domestic and South Asian market.
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A large and rapidly growing consumer market up to 300 million people, constitute the market for branded consumer goods - estimated to be growing at 8% per annum. Demand for several consumer products is growing at over 12% per annum.
- Foreign investment is welcome, approval is required but is automatic in sixty categories of industries.
- Skilled man-power and professional managers are available at competitive cost.
- One of the largest manufacturing sectors in the world, spanning almost all areas of
manufacturing activities.
- One of the largest pools of scientists, engineers, technicians and managers in the world.
- Rich base of mineral and agricultural resources.
- Long history of market economy infrastructure.
- Sophisticated financial sector.
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Vibrant capital market with over 9,000 listed companies and market capitalisation of US$ 154 billion (March,1996).
- Well developed R&D infrastructure and technical and marketing services.
- Policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export.
- Well balanced package of fiscal incentives.
- A sophisticated legal and accounting system.
- English is widely spoken and understood.
- Rupee is convertible on Current Account at market determined rate.
- Free and full repatriation of capital, technical fee, royalty and dividends.
- Foreign brand names are freely used.
- No income tax on profits derived from export of goods.
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Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100 per cent Export Oriented units and units in Export Processing Zones.
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Corporate Tax applicable to the foreign companies of a country with which agreement for avoidance of Double Taxation exists, can be one which is lower between the rates prevailing in any one of the two countries and the treaty rate.
- A long history of stable parliamentary democracy.
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FDI in Real Estate
Till recently, FDI in real estate was restricted to development of industrial parks, hotels,
integrated townships and SEZ's.
On March 3, 2005, Government of India replaced the integrated township policy to permit
FDI upto 100% in townships, housing, built-up infrastructure & construction - development projects, under automatic route (Press Note 2 (2005 series)).
FDI is now permitted in :
Tax Environment - Developers
Industrial Parks
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10 year tax holiday (in a block of 15 years) on pprofits derived from developing, developing and operating, maintaining and operating industrial parks in India , developed before March 31, 2008. |
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Tax holiday available subject to obtaining government approval under Industrial Park Scheme, 2002 and subsequent notification by Central Board of Direct Taxes. |
| SEZ's |
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10year tax holiday (in a block of 15 years) on profits derived form developing SEZ's in India , on or after April 1, 2005 (as SEZ Bill 2005) |
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Tax holiday available subject to obtaining Letter of Permission from Board of Approvals in Ministry of Commerce and notification by Central Government.. |
| Housing Projects |
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Income Tax Holiday available to housing projects approved by local authority before March 31, 2007. |
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Construction of projects to be completed with in 4 years from end of financial year in which approval is obtained. |
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Residential unit should have maximum built up area of 1,000 / 1,500 sqft (based on city of location) |
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Project should be on a plot of land which has maximum area of 1 acre. |
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Built up area of shops and other commercial establishments included in housing projects not tpo exceed 5% of aggregate built up area of housing projects or 2,000 sqft whichever is less. |
| Minimum Alternate Tax ("MAT") applicable where company is availing Tax Holiday and deriving book profits @ 8.42% of 'book profits' as defined under domestic tax laws. |
Tax Environment - Investors
| Section 10(23) G |
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Income from dividends, interests and long term capital gains by companies / trusts from investments in shares / long term finance (more than 5 years), of specified infrastructure development companies (eg. engaged in industrial parks, hotels, housing projects, etc) is tax exempt. |
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However , MAT may apply on such income o investors computed @ 8.42% of book profits. |
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In order to claim above exemption, the project company should be notified by CBDT. |
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| Section 1150 |
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Domestic Companies declaring dividend liable to pay dividend distribution tax ('DDT') @ 14.025% |
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However , MAT may apply on such income o investors computed @ 8.42% of book profits. |
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DDT is in addition to regular corporate tax payable by companies @33.66%. |
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