Despite the corona crisis, India continues to grow economically. In fact, it is on course to become the third largest consumer market in the world by 2030. The first and second positions are currently being held by the USA and China. Due to the growth of the Indian middle class, consumer spending will increase by about $4.5 trillion over the next decade. Therefore, there are great export opportunities in India, which you need to prepare for now. Apart from choosing the right strategy to enter the market, it’s also smart to look into the tax issues you will have to deal with if you are going to export to India, such as IEC, TDS and PAN card.
IEC – Import Export Code
IEC is a ten-digit code that every import/export company in India must-have. International companies that want to start selling their products in India and do not want to set up an office directly do not need to apply for IEC themselves. Instead, they can work with an authorised local importer. That importer must, of course, have an IEC and be registered under the GST. However, without an IEC number, goods will not pass through Indian customs. Moreover, without IEC the importer cannot make payments to foreign bank accounts.
TDS – Tax Deducted at Source
TDS is an input tax. The Indian companies that hire foreign service providers must withhold this tax from the invoices of these foreign companies. The same has to be paid to the Indian tax authorities. The customer is obliged to withhold TDS if the foreign service provider does not have its own establishment in India. In addition to technical service providers (maintenance and installation), this also applies, for example, to design and consultancy work.
PAN Card – Permanent Account Number
As in the Netherlands, the Indian tax authorities would like to see which companies do business with each other. A PAN number is, in fact, the Indian equivalent of the Dutch sales tax number. A PAN registration is mandatory for Indian companies. However, it is optional for foreign exporters and service providers doing business with India.
Exporting and selling in India, how to start?
It is not mandatory to have a PAN Card if you want to export to and sell in India. However, it is still wise to apply for a PAN registration when you want to do so. Without a PAN Card, the Indian customer has to withhold 20% TDS and pay the Indian tax authorities. This means that only 80% of the invoice amount will end up in your account. If you do have a PAN registration, the TDS rate is 10%. The remaining 10% can be refunded to Dutch BV’s via the corporate income tax in the Netherlands. However, this only applies to service providers, not to the sale and export of physical products or goods.
What can you do?
Look for a good importer who knows your specific market segment and has the right registrations. The IEC is important for the import of products. Moreover, it is only one of the registrations that must be met before products are allowed into India. An overview can be found here. Don’t let finding the right importer be a threshold to take the first steps on the Indian market. IndiaConnected works together with an Indian partner with a lot of knowledge and experience in this field. We help you find good importers and distributors for your product. Moreover, we think along with you about distribution throughout India. In fact, we can tell you all about the storage possibilities for different types of goods in India.
Once the first sales have been made, it is important to request a TDS certificate from your Indian customers. This will be acquired at the end of the Indian financial year (ends on March 31st). This certificate states how much TDS the customer has paid for your company. Further, this certificate can be used as a deduction for the VPB declaration or income tax in The Netherlands. After all, no tax needs to be paid on the TDS that has already been paid in India. This is all laid down in the DTAA (Double Taxation Avoidance Agreement) that the Netherlands and India have agreed upon.
This article is translated from the original Dutch from our partner India Connected.