In India the corporate tax rate for domestic companies is 30%. Domestic corporations incur a surcharge of 7% on income over INR 10 million and 12% on income over INR 100 million. Foreign companies are taxed at 40% and incur a surcharge of 2% on income over INR 10 million and 5% on income over INR 100 million. An additional 3% education cess is payable on corporate income taxes (including surcharges). A minimum alternate tax (MAT) is levied at 18.5% of the adjusted profits of companies where the tax payable is less than 18.5% of book profits. MAT does not apply to some types of income of foreign companies.
A separate code on transfer pricing under Sections 92 to 92F of the Indian Income Tax Act, 1961 (the Act) covers intra-group cross-border transactions. The code is broadly based on OECD TPG and describe the various transfer pricing methods, impose extensive annual transfer pricing documentation requirements. The code prescribes that income arising from international transactions or specified domestic transactions between associated enterprises should be computed having regard to the arm’s-length price. It has been clarified that any allowance for an expenditure or interest or allocation of any cost or expense arising from an international transaction or specified domestic transaction also shall be determined having regard to the arm’s-length price. The Act defines the terms ‘international transactions’, ‘specified domestic transactions’, ‘associated enterprises’ and ‘arm’s-length price’.