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Outsourcing Triggers Relocating In India - Part 3: Taxes, Social Security And Setting A Company

Nitya Rani

In last two parts we presented an overview on outsourcing and relocating in India and necessary steps in getting visas and residency permits. In this concluding article we provide information on Taxes, Social Security and Setting a Company.

Income tax is charged under the Indian Income Tax Act, 1961. It is an annual tax on income levied by the Central Government. Tax is charged in respect of the income of the financial year (known as previous year) in the next financial year (known as assessment year) at the rates fixed for such assessment year in the Finance Act passed each year by the Parliament. Women under sixty-five and senior citizens receive generous tax rebates, as do musicians, actors and professional sportspeople.

There is a convention between the Kingdom of the Netherlands and the Republic of India that avoids double taxation on income and capital for citizens of the two countries. India has such conventions with a number of other countries, including Belgium and some other EU countries.

Social security
A new program of social security for Indian workers is in the introductory stages in 25 state capitals around India. The pilot project centers on unorganized sector workers and aims to cover 1,000,000 workers in the first year (2004) and an additional 1,500,000 in the next.

Under the new Unorganized Sector Workers Bill, pension and medical insurance to unorganized sector workers is provided. Workers will be given a flat rate registered pension of INR 500 each month on retirement or permanent and total disablement. The scheme is to be financed by contributions from employees, employers and the government.

Setting up a company

It's much easier to set up a company if you are an Indian citizen. However, foreign companies or individuals may do so in three ways:
* As a foreign company through a Liaison Office / Representative Office, Project Office or a Branch Office.
* As an Indian company through a Joint Venture or a Wholly Owned Subsidiary.
* As a foreign Company that has been incorporated outside India and conducts business in India. (These companies are required to comply with the provisions of Companies Act, 1956.)

Indian citizens may set up companies in these ways:

* As an Individual / Proprietor
* As a Partnership / Firm / Trust
* As a Company registered under the Companies Act, 1956

Indian citizens quality for a number of government programmes, including:
* Domestic Tariff Area Special Economic Zones (SEZs)
* Export Processing Zones (EPZ)
* 100 Percent Export Oriented Unit (EOU)
* Software Technology Park (STP)

There are a variety of possibilities for joint ventures between non-Indian and Indian business entities.

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