An India-resident company suffers a flat corporate tax rate of 33% on global profits exceeding Rs1 million (US$25,000). Fortunately for companies in India, corporate tax rates continue to decline - in 1990 the corporate tax rate was a stifling 50%.

Individuals resident in India are liable to income tax on global income, including investment income. Examples of income liable to personal income tax include salary and bonuses, commissions and dividends. The average personal income tax rate is 30% of net income earned worldwide. Because foreign income remitted to India is taxable, India is an unattractive jurisdiction for wealthy entrepreneurs to reside in, and this is an important negative aspect of tax planning in India. To illustrate this, according to the 2008 Asia Pacific Wealth Report by Merrill Lynch and Capgemini, India boasts only 100,000 US dollar millionaires, compared with 345,000 millionaires in China and 1.9 million in the USA.

Since 2005, each Indian company is obliged to register for value added tax (VAT) of 12.5% on goods and services. Following VAT registration, the company is required to clearly illustrate a VAT charge on sales invoices. Furthermore, the company will claim reimbursement for VAT on corporate expenses.

A key aspect is that an Indian limited liability company is required to prepare annual financial statements complying with Indian Financial Accounting Standards. The financial statements accompany an annual corporate tax return submitted to the Income Tax Department by 31 March. Many entrepreneurs engage the professional services of qualified accountants and tax advisors to assist with this facet of tax planning in India.

Dividends paid to international and local companies are subject to withholding tax of 20%. A double tax treaty will assist international entrepreneurs minimise withholding tax. A double tax treaty is signed by two countries to prevent the duplicate taxation of international income. In addition, a double tax treaty reduces withholding tax on payments to non-resident individuals and companies. India has signed double taxation treaties with more than 70 countries, including Australia, Canada, China, Germany, France, Germany, Indonesia, Italy, Japan, Malaysia, New Zealand, Singapore, the UK and the US.