India

Goods and services tax (GST)

The GST, was implemented on 1 July 2017, and is India’s comprehensive indirect tax levied on the supply of goods and services. This multi-stage, destination-based tax replaces numerous previous indirect taxes, including excise duty, service tax and value added tax (VAT), simplifying the tax framework and reducing cascading effect of taxes.

Scope and exclusions

Notably, GST does not cover certain products such as petrol, diesel, aviation turbine fuel, natural gas, alcohol for human consumption and certain types of alcohol used to manufacture alcoholic liquor for human consumption and crude oil. These items continue to be subject to VAT, which applies to sale of goods, as well as excise duty, which is levied on manufacturing of goods, under jurisdiction of State and Central Government taxation system respectively. Thus, despite the broad reach of GST, VAT and excise remain relevant and operative for these categories.

Governance by GST Council

The GST Council, which includes the Union Finance Minister and state finance ministers, governs the operations of GST. This council frequently evaluates and suggests rate changes, legislative amendments, and issues essential guidelines to ensure that the GST framework adapts effectively to the country’s economic requirements.

Structure of GST

Indian GST is a dual model and is structured into three main components:

• Central GST (CGST), levied by the Central Government on intra-state supplies.
• State GST (SGST)/ Union Territory GST (UTGST), levied by the State Governments/ Union Territories on intra-state supplies.
• Integrated GST (IGST), levied by the Central Government on inter-state supplies, including imports. It is a sum of CGST and SGST/ UTGST.

GST rate

The GST rates are categorised into four main slabs viz. 5%, 12%, 18% and 28% depending upon the category of goods and services. The general rate of tax being 18% for majority of supplies.

Additionally, some categories of goods/ services, such as vehicles, aerated beverages, etc. notified by the government are subject to compensation cess under GST. Moreover, certain goods and services are exempt from GST (e.g. electrical energy).

Registration and Compliance

Businesses with an annual aggregate turnover exceeding INR 2 million (INR 1 million for special category states) are required to register for GST.  

However, the threshold to obtain GST registration by a person who is engaged in exclusive intra-state supply of goods is INR 4 million aggregate turnover, except in some specified cases. Additionally, there are a certain specified category of taxpayers who are compulsorily required to be registered.

Small taxpayers having annual turnover of INR 15 million can opt for the composition scheme which allows them to pay tax at a lower rate and file quarterly returns. However, they cannot claim input tax credit (ITC) under this scheme.

Compliances in GST involves obtaining registration, regularly filing GST returns (monthly and quarterly as applicable), and filing an annual return, among other requirements to ensure adherence to GST regulations. Moreover, the government has introduced the Invoice Management System (IMS) from October 2024, which captures ITC transaction details from vendors’ output returns. Recipients must accept, reject, or defer these transactions, generating Form 2B for ITC availment in the Form GSTR-3B return.

Input tax credit

GST allows businesses to claim ITC on the tax paid on inward supplies (that are used or intended to be used in the course or furtherance of business), which can be set-off against the tax liability on output. This mechanism helps in avoiding the cascading effect of taxes and ensures that tax is levied only on the value addition. However, there is a specified list of goods and services where credit is blocked and is not available under GST.

Input Service Distributor (ISD) mechanism

An ISD is a specific type of taxpayer under the GST regime. An ISD is responsible for distributing the GST ITC related to its GSTIN to its various units or branches, which have different GSTINs but are registered under the same PAN. Effective from 1 April 2025, it has been made mandatory for entities to register under GST as an ISD if they receive common input service invoices for multiple GSTINs. These entities must also comply with the distribution of ITC and the filing of monthly ISD return (Form GSTR-6).

Reverse Charge Mechanism (RCM)

Under RCM, GST liability shifts from supplier to the recipient in notified scenarios like imports, services from legal firms and Goods Transport Agencies.  

Zero-rated supplies/ export of goods and services

Export of goods and services are zero rated under GST. Exporters can export with/ without payment of tax and claim refund of tax paid/ ITC of inputs/ input services used in export of goods/ services, subject to fulfilment of prescribed conditions.

E-invoicing under GST

The government mandated e-invoicing for B2B transactions from 1 October 2020 for taxpayers with an annual turnover exceeding INR 500 million. The threshold has been progressively lowered, reaching INR 50 million from 1 August 2023. E-invoicing involves electronic authentication of invoices via the Invoice Registration Portal (IRP), which issues a unique Invoice Registration Number (IRN) and QR code. Certain entities are exempt from e-invoicing, and dynamic QR codes are required for B2C invoices to promote digital payments.

E-way bills

The e-way bill is an electronic bill that is required for the movement of goods in case the value of the consignment is above INR 50,000. The movement of goods may be (i) in relation to supply, (ii) for reasons other than supply, or (iii) due to inward supply from unregistered persons.

The e-way bill can be generated from the GSTN portal, and every GST-registered taxpayer is required to comply with the requirement to issue an e-way bill.

When the principal supply is purely a supply of service and does not involve the movement of goods, there is no requirement to generate an e-way bill.

Advance rulings for Customs and GST

The Authority for Advance Rulings (AAR) is a quasi-judicial body established by the Central Government to help foreign investors determine their indirect tax liabilities for proposed business ventures in India. It provides advance rulings on specific matters under customs and GST for both residents and non-residents involved in joint ventures.

Advance rulings can be sought for proposed or ongoing transactions, ensuring minimal disputes and providing certainty regarding tax obligations under the Central Goods and Services Tax Act, 2017 (CGST Act). This process aims to foster a transparent relationship between taxpayers and the administration, reducing unnecessary litigation.

In terms of GST provisions, there are a specified list of matters/ questions that can be sought before the AAR.

Amnesty scheme under indirect tax

Effective 1 November 2024, section 128A of the CGST Act, 2017 permits waiving interest and penalties on specific notices under section 73, if the full tax is paid by 31 March 2025. This applies to demands from 1 July 2017 to 31 March 2020. Refunds for already paid interest or penalties are not allowed. Applications must be filed by 30 June 2025, as outlined in rule 164 of the Central Goods and Services Tax Rules, 2017.

Customs duty

All goods imported into India are subject to customs entry requirements and are subject to customs duty generally on an ad valorem basis, except for few items (e.g. edible oils, gold, silver) that are subject to specific tariff rate as notified from time to time.

The customs duty is levied based on the classification as laid down in the Customs Tariff Act, 1975 which follows the Harmonized System of Nomenclature of the World Customs Organisation (WCO), with certain localisation. The customs duty on entry of goods is levied on transaction value (i.e. price paid or payable in additions as provided under Customs Valuation Rules, which are based on GATT Valuation Code). The value basis for assessment is CIF apart from other additions that may be required as directed by Customs in terms of Customs Valuation Rules. However, related-party transactions are scrutinised closely by Indian Customs for arm’s-length nature of transaction and complete disclosure of value for the purpose of assessment of customs duty.

The customs duty comprises basic customs duty (generally levied at 7.5% or 10%) apart from other duties comprising of:

• Social Welfare Surcharge: An additional surcharge up to 10% of the BCD is levied to fund social welfare programs.
• IGST and Compensation Cess: Imports are subject to IGST and, if applicable, Compensation Cess under the GST regime as levied on identical goods manufactured and sold in India.
• Health Cess: Effective from 2 February 2020, a 5% health cess is imposed on the import of medical devices to support health infrastructure.
• Agriculture Infrastructure and Development Cess (AIDC) is an additional levy imposed on certain imported goods. It is levied at a specified rate on the assessable value of the imported goods. It is designed to fund infrastructure development in the agriculture sector.

Effective March 2025, the basic customs duty rate slab was rationalised from 8 to 5 rates including zero rate with alignment of existing basic customs duty rates from 25%, 30%, 40% to 20% and basic customs duty rate from 150%, 120% and 100% to 70% respectively. In addition to these duties, which are dependent on classification, certain goods are subject to anti-dumping, countervailing, and safeguard duty as well. Also, depending upon the economic and trade requirement, the government can change the rate of duties on specified goods/sectors.

Exemption from these duties is extended on certain classifications and/or end use/sectoral promotion, including bilateral/multilateral trade agreements. Some of these exemptions can be conditional and require additional compliances as well. Moreover, exemptions now have a validity of two years from the date of notification unless extended.

Exemption from customs duties is also extended to promote exports, including businesses located in Free Trade Zones. However, these are linked to export commitments and other conditions/requirements.

Apart from customs duty, imports into India are subject to compliance with trade policy requirements as notified under Foreign Trade Policy. Largely, goods are freely importable; however, some goods may require pre-approval/licences and compliance with domestic regulations in terms of certifications, approvals, etc.

On the export side, while largely no customs duty is levied except on a few specified items, India, being part of the export control regime, monitors export of potential dual use goods and technology.

The cross-border transaction is done through the online portal of Indian Customs, which also has single window facilitation for other approvals. The customs duty needs to be paid electronically within 24 hours of importation and filing of import entry; otherwise, interest and penalty is payable as well. However, specific Authorised Economic Operator (AEO) status holders are eligible for duty deferment benefit, subject to conditions. Apart from this benefit, the AEO status holders are extended certain additional benefits in terms of compliances and procedural relaxations.

Moreover, while the clearances are handled by the Customs Broker, the consequences of any error or mis-declaration lie with the importer. Hence, the Customs Broker arrangement needs to be examined and reviewed periodically vis-à-vis compliance status.

While Indian Customs now follows a self-declaration regime with faceless customs assessment system in operation, trade needs to ensure that declarations made at the time of import/export entry are correct and compliant with the applicable laws. Indian Customs has adopted post clearance audits where the trade is audited on these compliances as per internal guidelines or periodic checks.

As a part of further facilitation and promote self-compliance, a facility of voluntary revision of import/ export declaration post clearances to permit payment of duty or seek refund of duty is introduced except in specified cases e.g. investigation/ audit or re-assessment or finalisation already completed.

Additionally, in order to reduce compliance burden and fast track assessment process in customs, provisional assessment undertaken for the imported goods at the request of the importer or by the customs authorities in specific circumstances need to be finalised within a period of two years extendable on merits by one year, except in specified cases.

As a trade facilitation measure, an Advance Ruling mechanism is available under Indian Customs for the trade to seek ruling on specific aspects prior to import, like classification, exemption/ duty rates, valuation methodology, and origin compliance.

Non-compliance or evasion of duty through suppression of facts or mis-declaration can trigger investigation by the investigative arm of Indian Customs, which, depending upon the facts, can cover a five-year period and may result in notices for demand and penalties, including personal penalties. Hence, having a robust compliance and record management system is a must, as well as being updated on relevant developments.

Property taxes

Property tax is levied by the governing authority of the jurisdiction in which the property is located. The rate of tax levied varies from city to city in India and is generally related to the prevailing market prices for property in each locality.

Stamp duties

Stamp duty is a government tax that is levied on all legal property transactions. Stamp duty is a tax that is paid as evidence for any purchase or sale of a property between two or more parties. Stamp papers, which are bought either in the name of the buyer or seller, are valid for six months, provided the stamp duty is paid without any delay. No document that has not been duly stamped can be introduced as evidence in any court proceedings. Stamp duty is charged at both central and state levels. State level stamp duties vary from state to state, and on the document type. Stamp duty should be paid in full without any delay, failing which, a penalty is levied. Stamp duty has to be paid prior to execution (signature by an individual’s party) of a given document, the next day, or on the day of document execution. Stamp duty is paid by a buyer in most cases. However, both the seller and the buyer have to bear the burden of stamp duty for property exchange cases. Stamp duty rates differ in various states across the country, as stamp duty in India is a state subject. However, the Central Government fixes the stamp duty rates of specific instruments.

Virtual digital assets (VDAs): Crypto taxation

Finance Act, 2022 has introduced provisions to bring VDAs (including crypto currencies, NFTs, etc) into tax ambit. The gains arising on transfer of VDAs would be taxable at 30% without providing any deduction of expenses other than cost of acquisition. Further, any loss arising on transfer of VDAs is not permitted to be set-off against any other income in the current year or subsequent years.

Tax is to be deducted at 1% payment to a resident on transfer of VDAs with effect from 1 July 2022.

Buyback of shares

An additional tax is payable on transactions involving buyback of shares by Indian companies from its shareholders. A tax at 20% (plus surcharge at 12% and health and education cess at 4%) is payable by the company on the difference of consideration paid on buyback and the issue price of shares. The Central Board of Direct Taxes (CBDT) has prescribed the methodology for determination of amount received for issue of shares under 12 different situations, being a subject matter of tax on buyback. The buyback consideration received will be tax exempt in the hands of the receiver. No tax credit will be allowed in case of such taxes paid either to the company or to the shareholder.

Finance Act, 2024 has amended the provisions related to taxability of buyback of shares. As per the amended provisions, the buyback proceeds shall be considered as deemed dividend in the hands of shareholders. The cost of acquisition shall be considered as capital loss in the hands of shareholders, which can be adjusted against the capital gains, if any. The amended provisions shall be applicable with effect from 1 October 2024.  

Securities transaction tax (STT)

STT is applicable to transactions involving the purchase/sale of equity shares, derivatives, units of equity-oriented funds through a recognised stock exchange, or the purchase/sale of a unit of an equity-oriented fund to any mutual fund. The STT leviable in respect of such transactions varies for each kind of instrument, whether delivery based or non-delivery based. Rate of STT varies from 0.001% to 0.125%, depending upon the nature of securities. However, securities transacted by any person on a recognised stock exchange located in an International Financial Services Centre where the consideration for such transaction is paid or payable in foreign currency are not subject to STT.

Taxability of Partnership/ LLP

A partnership firm and an LLP are taxed as separate legal entities. The share of income of partners from a partnership firm or an LLP is exempt from tax. Partnerships and LLPs are taxed at 31.2% (inclusive of surcharge and health and education cess) if the income is less than INR 10 million and 34.944% (inclusive of surcharge and health and education cess) if the income exceeds INR 10 million. Alternate minimum tax at the rate of 18.5% applies to a partnership/LLP.

The interest payment to partners on capital or current account is allowed as tax-deductible expenditure. However, the maximum interest rate allowable for tax purposes is 12% per annum. A working partner can be paid salary, bonus, commission, or remuneration. The maximum permissible deduction in respect of remuneration payable collectively to all working partners is based on the book profit of the firm, at slab rates for different levels of book profit.

Finance Act, 2024 has introduced WHT provisions whereby if a partnership firm is making a payment (salary, remuneration, commission, bonus, or interest) to its partner over and above the prescribed threshold, that partnership firm is required to withhold taxes at the rate of 10%.

Payroll taxes and social security payments

Please see Social security contributions in the Other taxes section of the Individual tax summary.