India Budget 2013: Key Changes Affecting International Investors

On February 28, 2013, India’s Finance Minister presented the country’s budget for the fiscal year beginning April 1, 2013 (Budget). The Budget includes several proposals that affect international investors investing in India, including the following which are significant:

- The General Anti Avoidance Rule (GAAR) proposed last year is to come into effect from the financial year beginning April 1, 2015, in line with the recommendations of an expert committee constituted by the Prime Minister on GAAR (the Shome Committee). However, certain other proposals recommended by the Shome Committee that were favorable to international investors have not been accepted.

- Foreign investment in an Indian company of less than 10% is to be deemed to be under the foreign institutional investor (FII) route and foreign investment above this limit is to be deemed to be under the foreign direct investment (FDI) route.

- Tax rates applicable to business income of foreign companies above certain thresholds and on royalties and fees for technical services paid to a non resident have been increased.

- Tax is to be imposed on Indian companies buying back unlisted shares.

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