Import Procedures

Traders intending to import goods must submit an application to the Directorate General of Foreign Trade and obtain an Importer and Exporter Code (IEC) number. If the trading firm is considered an EOU/EPZ (Export Oriented Units - Export Processing Zone) (100% of the production is exported), the IEC is issued by the Development Commissioner of the Export Processing Zone. This number has to be indicated on all documents filed with the Indian Customs for customs clearance procedure. This number is not required for the import of gifts and suitcases.
To determine whether a license is needed to import a particular commercial product or service, an importer must first classify the item by identifying its Indian Trading Clarification based on a Harmonized System of Coding or ITC (HS) classification.
After obtaining import licenses, importers are required to furnish import declaration in the prescribed Bill of Entry along with permanent account number (PAN) based Business Identification Number, as per Section 46 of the Customs Act (1962).
All imported goods must meet the terms of the Article 11 of the 1962 Customs Act, the Foreign Trade (Development and Regulation) Act and the EXIM policy in force. Goods that do not fall under the purview of the EXIM policy are generally confiscated or may be reimbursed in exchange for the payment of a fine.

For more information, please visit the Indian Trade Portal.

Specific Import Procedures

Schemes and procedures that facilitate customs clearance include: Electronic Data Interface (EDI), enabling e-payment of duties, implementation of customs Risk Management System (RMS), automation of customs formalities to Special Economic Zones (SEZ).

Certain goods are prohibited under the Foreign Trade (Development and Regulation) Act, 1992.

Distribution channels

There has been a significant expansion in distribution channels in India during the past few years. Indian retail industry is one of the fastest growing in the world. According to Invest India, the overall retail market is set to cross the $2 trillion mark by 2032 from $690 billion in 2021. The Indian retail e-commerce market, which amounted to $72 billion in 2021, is also set to grow at an annual growth rate of 30% for a gross value of goods of $350 billion by 2030. Retail is India's largest industrial sector, currently accounting for over 10% of India's GDP and 8% of total employment.

Most Indian manufacturers use a three-tier selling and distribution structure that has evolved over the years. This structure involves redistribution stockists, wholesalers, and retailers. As an example, an FMCG company operating on an all-India basis could have between 40 and 80 redistribution stockists (RS). The RS will sell the product to between 100 and 450 wholesalers. Finally, both the RS and wholesalers will service between 250,000-750,000 retailers throughout the country. The RS will sell to both large and small retailers in the cities as well as interior parts of India. Depending on how a company chooses to manage and supervise these relations, its sales staff may vary from 75 to 500 employees.  Wholesaling is profitable by maintaining low costs with high turnover, with typical FMCG product margins anywhere from 4-5%. Many wholesalers operate out of wholesale markets. In urban areas, the more enterprising retailers provide credit and home-delivery.  Now, with the advent of shopping malls, companies talk of direct delivery and discounts for large retail outlets.

In 2021, e-commerce generated $63 billion in revenues, growing by 26% compared to 2020 (ecommerceDB). India will have 500 million online buyers by 2030, compared to 150 million in 2020, with digital spending projected to increase more than tenfold to $800 billion and account for more than a third of all retail sales by 2030.

Distribution market players

India’s food and grocery retail industry is considered the third largest in the world with sales reaching $858 billion in 2022 and expected to grow annually by 8.17% (Statista). The food and grocery sector constitutes nearly 70% of the total retail market in India. The food retail sector in India is comprised of modern grocery retailers along with e-commerce, representing 10% of the market share and traditional retail formats, specifically neighborhood shops called kirana stores, which account for 90% of all retail sales.

Due to the Covid-19 crisis, the food retail sector in India has undergone changes.  India's largest food retailer, Reliance, has worked with WhatsApp to expand its presence in the e-commerce market by linking kirana shops to its online platform and supply chain. Due to blocking restrictions and social distance regulations, Indian customers have increasingly turned to e-commerce platforms to secure essential food supplies. Thus, many retailers have organised themselves with and commerce services, Amazon India has expanded its Amazon Pantry services to over 300 cities.

The unorganized sector in food retail is predominantly dominated by general stores, kirana stores, convenience stores and street markets. On the other hand, the organized sector includes gourmet stores, department stores, discount stores, supermarkets and hypermarkets, e-tailers and cash-and-carry formats; there are mainly Indian firms.

The major food retail chains in India are: Reliance Retail, Future Value Retail, Avenue Supermarts Limited, More Retail Limited, Star Bazaar, Spencer’s Retail, Walmart India, Spar Hypermarket and Namdhari’s Fresh.

Retail Sector Organisations

Retailers Association of India

Consumption Taxes

Nature of the Tax

Goods and Services Tax

Tax Rate

Goods and services can be subject to six different rates: 0.25% or 3% (diamonds and other precious stones, gold, silver), 5% (coal and biogas, air transport of passengers in economy class, restaurants, construction services of residential apartment), 12% or 18% (electrical apparatus for radio and television broadcasting, accommodation in hotels, intellectual property rights, construction services other than residential apartments, banking services), and 28% (motor cars, air-conditioners, aerated drinks, online money gaming, access to race clubs and casinos).

Reduced Tax Rate

Examples of taxable supplies include:

• 0.25% rate: rough precious and semi-precious stones
• 3% rate: gold and silver
• 5% rate: coal and biogas; air transport of passengers in economy class; restaurants; construction services of residential apartment
• 12% and 18% rates: electrical apparatus for radio and television broadcasting, accommodation in hotels, intellectual property rights, construction services other than residential apartments, banking services
• 28% rate: motor cars; air-conditioners; aerated drinks; online money gaming; access to race clubs and casinos.

A GST compensation cess applies on some demerit and luxury items, including automobiles and tobacco products.

Other Consumption Taxes

The Goods and Services Tax (GST) system replaced the following indirect taxes: Excise duty, CVD/ADC, Service tax, VAT/CST, Entertainment tax, Luxury tax, Lottery taxes, State cesses and surcharges, Entry tax not in lieu of octroi. A GST compensation cess applies on some demerit and luxury items, including automobiles and tobacco products.

Stamp duties and real estate taxes are imposed by municipal authorities and vary across states. A separate securities transaction tax (varying between 0.001% and 0.125%) continues to apply. Some demerit and luxury items are subject to a compensation cess (rates vary).

Vehicle taxes are charged in various States.

Corporate Taxes

Company Tax

Domestic companies and partnerships: 30%

The effective tax (including surcharge and health and education cess) can range from 31.20% (income below INR 10 million); 33.38% (income between INR 10 and 100 million); and 34.94% (income over INR 100 million)

Tax Rate For Foreign Companies

A corporation is resident if it is incorporated in India or if its place of effective management is in India during a certain year.
A partnership firm, LLP, or other non-individual entity is considered resident in India if any part of the control and management of its affairs takes place in India.

Capital Gains Taxation

The tax treatment of capital gains varies based on the duration the asset is held. Gains are considered long-term if the asset is held for more than three years, one year for listed shares and specified securities, and two years for unlisted shares and immovable property (land, buildings, or both).

For listed shares and specified securities not subject to the Securities Transactions Tax (STT), gains are taxed at the lower of 10% (plus surcharge and cess, if applicable) without inflation adjustment, or 20% (plus surcharge and cess) with inflation adjustment. Long-term gains on listed securities subject to STT are taxed at 10% (plus surcharge and cess). Long-term gains on other capital assets, excluding listed shares and securities, are taxed at 20% (plus surcharge and cess) with the benefit of inflation adjustment. For nonresidents, the tax rate on long-term gains from unlisted securities is 10% (plus surcharge and cess) without foreign currency conversion or inflation adjustment.

Short-term gains on listed shares and specified securities subject to STT are taxed at 15% (plus surcharge and cess), while gains from other short-term assets are taxed at normal rates (plus surcharge and cess). Domestic companies must pay an additional 20% tax (plus surcharge and cess) on income distributed to shareholders from a share buyback.

Gains on the disposal of units in specified mutual funds acquired on or after April 1, 2023, and on market-linked debentures, are considered short-term capital gains from April 1, 2023, and are taxed at the applicable rate(s) (plus surcharge and cess) without indexation.

Main Allowable Deductions and Tax Credits

In general, expenses are deductible if they are incurred wholly and exclusively for business or professional purposes, not in the nature of a personal expense, and if they are not capital in nature.
Allowable deductions include wages and salaries, bonuses and commissions, rent, repairs, insurance, royalty payments, certain taxes (sales, municipal, road, property and expenditure taxes, customs duties), interest, lease payments, depreciation, expenditure for materials and scientific research, etc. One-fifth of start-up expenditure is allowed as a yearly deduction, over a period of five years. Bad debts can be allowed as a tax-deductible write-off if they have been written off as irrecoverable.
Certain expenses, including employees’ provident fund dues, employee bonuses, interest payable to financial institutions and banks, and payments to micro, small, and medium enterprises, are tax-deductible only upon actual payment. Tax disallowances apply if these payments are delayed beyond their respective legal due dates.
Any interest paid by a taxpayer on capital borrowed for business or professional purposes is fully tax-deductible. However, if the interest is paid to certain related non-resident associated enterprises, the deduction is limited to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA). Any disallowed excess interest expenditure can be carried forward for eight years for future set-off. If the capital is borrowed to acquire a capital asset, the interest liability until the asset is put to use cannot be deducted as an expense and must be added to the asset's cost.
Only donations made in cash or by cheque are eligible for a tax deduction under Section 80G, but cash donations exceeding INR 10,000 do not qualify for a deduction. Additionally, cash donations over INR 2,000 are not eligible for a deduction, so contributions exceeding this amount must be made by other modes to qualify. Donations in kind are not eligible for any tax deduction.
Losses can be carried forward and set off against income from the subsequent year (business and capital losses for 8 years), while carrybacks are not allowed.

A 100% deduction is available for capital and revenue expenditures (excluding land or buildings) on in-house scientific research conducted by companies in specified industries, such as biotechnology or manufacturing eligible goods, and for payments made to specified organizations for scientific research. This includes amounts paid to companies registered in India conducting scientific research, research associations, universities, colleges, or other institutions engaged in social science or statistical research.
An investment-linked incentive allows a 100% deduction for capital expenditures, excluding land, goodwill, or financial instruments, for specified activities. This incentive also applies to the development, maintenance, and operation of infrastructure facilities like roads, highway projects, water-supply projects, or ports, subject to certain conditions.
A 100% deduction is available for capital and revenue expenditures on "notified" agricultural extension or skill development projects. For the right to use spectrum for telecommunication services, certain capital expenditures can be deducted over the period of the right.
Units in the IFSC in GIFT City can claim a 100% deduction of income for 10 out of 15 assessment years and are subject to a concessional MAT rate of 9%. Eligible start-ups can elect a 100% deduction of profits from an eligible business for any three consecutive assessment years out of the 10 years starting from the year of incorporation (for companies/LLPs established on or after 1 April 2016 and before 1 April 2024).
A concessionary tax rate of 10% (plus surcharge and cess) on income by way of royalty in respect of a patent developed and registered in India by a resident in India ("Patent Box regime").

Other Corporate Taxes

A securities transaction tax 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 rates vary from 0.001% to 0.125%, depending upon the type of securities.

A property tax is levied by the governing authority of the jurisdiction in which the property is located, with rates varying from city to city. Stamp duties apply to all legal property transactions, with different rates being set by each state.

Social contributions paid by the employer amount to 12% of the employee's salary (8.33% are allocated to the Employees’ Pension Fund, capped at INR 15,000/month for Indian employees). A reduced tax rate can apply to individual and Hindu Undivided Family (HUF) taxpayers.

An equalization levy of 6% must be withheld by a resident payer or a nonresident payer with a PE in India on consideration exceeding INR 100,000 for specified services received by a nonresident without a PE in India, such as online advertising or digital advertising space. Additionally, a 2% equalization levy applies to e-commerce supply and services provided by an e-commerce operator without a PE in India, if their annual sales, turnover, or gross receipts are at least INR 20 million. Income subject to the 6% levy is not taxed in the recipient's hands, and income from e-commerce supply or services subject to the 2% levy is exempt from income tax. A 1% withholding tax applies to the sale of goods or provision of services by an e-commerce operator to an e-commerce participant resident in India.

The Finance Act, 2022 taxes gains from VDAs, including cryptocurrencies and NFTs, at 30% without allowing expense deductions other than the cost of acquisition. Losses from VDA transfers cannot be set off against other income. From July 1, 2022, a 1% TDS applies to payments to residents on VDA transfers.

Partnership firms and LLPs are taxed separately, with partners' income shares being tax-exempt. They face a tax rate of 31.2% (inclusive of surcharge and health and education cess) for income below INR 10 million and 34.944% for income exceeding INR 10 million, along with an alternate minimum tax of 18.5%. Interest payments to partners on capital or current accounts are tax-deductible, capped at 12% per annum. Working partners can receive salary, bonus, commission, or remuneration, with deductions based on the firm's book profit at different profit levels.

Indian companies must pay an additional tax on share buybacks from shareholders at 20% (plus a 12% surcharge and 4% health and education cess) on the difference between the buyback consideration and the issue price of the shares. The CBDT has outlined the methodology for determining the issue price under 12 different situations. The buyback consideration received by shareholders is tax-exempt, and no tax credit is allowed for these taxes to either the company or the shareholders.

Other Domestic Resources

Income Tax Department

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed

Treaties signed with countries for avoidance of double taxation

Withholding Taxes

Dividend: Dividends distributed to Indian residents typically incur a 10% withholding tax, while those paid to nonresidents are usually subject to a 20% withholding tax. However, dividends on global depository receipts are taxed at a 10% rate. The withholding tax rates for nonresident dividends may be reduced under applicable tax treaties and are subject to any relevant surcharge and cess.

Interest: Interest payments to Indian residents generally incur a 10% withholding tax, including those from listed debentures. For nonresidents, interest on foreign currency borrowings faces a 20% withholding tax (plus surcharge and cess), while interest on convertible bonds is taxed at 10% (plus surcharge and cess) until the conversion option is exercised. These rates may be reduced under tax treaties. Additionally, a 5% withholding tax (plus surcharge and cess) applies to specific interest types for nonresidents, such as borrowings made before July 1, 2023, or investments by foreign investors in rupee-denominated bonds. In cases where a treaty applies but the nonresident lacks a PAN, tax is withheld at the higher of the treaty rate or 20%, unless the required documents are provided. If certain conditions aren't met for concessional rates, a 30% withholding tax (or 40% for foreign companies) applies, with potential treaty-based reductions.

Royalties: Royalties paid to Indian residents typically face a 2% withholding tax, except when related to cinematographic films, where the rate is 10%. Nonresident royalties incur a 20% withholding tax (plus surcharge and cess), raised from 10% since April 1, 2023, but this may be reduced under tax treaties. If a treaty applies but the nonresident lacks a PAN, tax is withheld at the higher of the treaty rate or 20%, unless the required documents are provided.

The rates may be reduced under a tax treaty.