The reduction in corporate income tax on foreign companies to 35 per cent from 40 per cent is seen as a step to attract global investment as well as broaden the tax base.

This will have a positive impact on the tax burden of foreign companies who have a permanent establishment and taxable presence in India. “It is not a small difference,” said Sanjay Sanghvi, Partner, Khaitan & Co, adding that it would result in savings of 6-6.5 percent including surcharge and education cess. The current effective rate is 42.23 percent and the cut in tax rate will reduce the tax burden on foreign companies.

“I think it is a meaningful measure and it can add to the decision making process of foreign companies when thinking of setting up permanent establishments in India,” he said. It is also seen as part of the government’s initiatives towards ease of doing business and recognition of the significant role that foreign companies are playing in the Indian economy.

There are a large number of foreign-owned and foreign-controlled companies operating in India and there is significant disparity in the way they are taxed compared to domestic companies. Domestic companies are taxed at 25 per cent and the intent of the government is to bring in a level playing field between the two.

Large multinationals have set up their global capability centres in India and the reduction in tax rates will encourage GCCs, said Anshul Jain, Chief Executive - India, SE Asia & APAC Tenant Representation, Cushman & Wakefield.

GCCs have been big drivers of real estate office demand in India while also being large employers. According to the Economic Survey GCCs employed over 16 lakhs in FY23 and they are expected to contribute 3.5 per cent to India’s GDP by 2030.

Related Topics