[ESTABLISHING A BUSINESS ENTITY IN INDIA]
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surcharge and cess, subject to beneficial tax rates as provided under DTAA, if availed. 4.4.2 Repatriation of Fees and Royalties: The royalties/fees for technical services can be remitted to non-residents subject to deduction of withholding tax at rates prescribed under the Income Tax Act, 1961. If the foreign collaborator belongs to a country having a DTAA with India providing for a lower withholding tax, it can avail the benefit of lower withholding taxes paid in India by furnishing certain additional information and documents in the manner prescribed under law. As discussed above, the lump sum technical know-how fee and/or royalty may also be converted into shares of the Indian company, subject to regulatory compliances. 4.4.3 Renunciation of Rights of Equity Instruments held on Repatriable Basis: Foreign investors can acquire equity instruments (other than share warrants) on repatriable basis based on the right renounced by a person resident in India and by a person resident outside India holding equity instruments on a non-repatriation
basis. The investment would, however, need to adhere with entry routes, sectoral caps or investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person resident outside India. 4.4.4 Capital Gains: In the absence of stipulation of a lower rate of tax by the DTAA, capital gains can be repatriated out of India subject to withholding tax between 10% (ten percent) to 20% (twenty percent) (plus applicable surcharge and cess), depending on their nature. 4.4.5 Capital Repatriation on Disinvestment: AD Banks ordinarily allow repatriation of sale proceeds of a security (net of applicable taxes) provided the security is held on repatriation basis and the sale has been made in accordance with prescribed guidelines and tax clearance/’no objection’ certificate from Indian tax authorities has been produced. Repatriation may be made through normal banking channels.
ILN Corporate Group – Establishing a Business Entity Series
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