Foreign Investors Have 18 Months Left to Obtain Tax Breaks

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By Chris Devonshire-Ellis

Aug. 28 – India’s new tax code may create a window of opportunity for foreign investors wanting to enter the Indian market with reduced tax rates. Currently, special economic zones (SEZ) in the country carry tax breaks of up to 15 years in some sectors, in addition to a number of other benefits to attract investment.

Just like the foreign investment wave that happened in China, these tax breaks are likely to have an application deadline. The draft tax code indicates that the Ministry of Finance will honor tax breaks given to SEZ investors up until March 1, 2011, after which they will cease to be granted.

This gives an incentive for foreign investors to obtain their business licenses to operate in India ahead of this date. Tax breaks given to investors prior to the deadline will continue to be honored, while companies investing after the deadline will have to pay normal corporate tax rates of 25 percent and no holidays.

Chris Devonshire-Ellis is the managing partner of Dezan Shira & Associates in India. Foreign investors interested in setting up business in India may email india@dezshira.com or visit the company’s website here.