Transcript Educational Establishment in India Financial & Tax Considerations

Educational Establishment in India
Financial & Tax Considerations
Contents
•
Education Sector in India – overview of regulatory framework
•
Brief overview of certain key Indian financial and tax aspects pertinent to
Foreign Educational Institutions:




•
1
Foreign Direct Investment (FDI) Regulations
Broad Indian Tax Framework
Other Tax Considerations
Foreign Educational Institutions(Regulation of Entry and Operations) Bill, 2010
Setting up an Educational Institution in India – Alternative Entities
© Deloitte & Touche LLP and affiliated entities.
Education Sector in India
© Deloitte & Touche LLP and affiliated entities.
Regulatory framework
Kindergarten - 12th (K-12)
• The CBSE/ ICSE and state board regulations broadly stipulate running of a K12 institution only as a
trust or society.
•
Income from the trust, the' reasonable surplus’ (not defined) can be used for the development of the
same institution and cannot be distributed as dividends.
•
•
There is no umbrella regulation of K-12 schools,
Though some states provide ‘for profit schools’, at least on paper these are still structured as non
profit trusts in order to get recognition from certain bodies. Schools seeking affiliations with
international boards such as IGCSE (International General Certificate of Secondary Education), may
opt either for-profit company or a not-for profit trust, depending on state laws.
Higher Education
• Higher education has several regulatory bodies, including AICTE “All India Council for Technical
Education” and UGC ”University Grants Commission “.
•
As education is a joint responsibility of the Central and State governments, some states have passed
separate legislations on private higher education.
Foreign institutions (Proposed)
• Entry of foreign educational institutions in India would be governed by the Foreign Educational
Institutions Bill which proposes to grant university status to foreign institutes.
3
© Deloitte & Touche LLP and affiliated entities.
Foreign Direct Investment in
Education Sector
© Deloitte & Touche LLP and affiliated entities.
Foreign Direct Investment (FDI) Regulations
• Foreign investment in India is governed by the Foreign Direct Investment (FDI)
policy announced by the Government of India (GOI) and provisions of the Foreign
Exchange Management Act, 1999 (FEMA)
• Under the FDI Scheme, investment can be made by a foreign investor in shares of
an Indian Company, under two routes, namely:
– Approval Route
– Automatic Route
• Under the automatic route, no approval of the GOI or the Reserve Bank of India is
required
• 100% investment is permitted under automatic route in a company incorporated in
India in the education sector
FDI in society/ trust may not be permissible
under the automatic route
Source: Press Note 7 (2008) and Press Note 2 (2005)
5
© Deloitte & Touche LLP and affiliated entities.
Payment of Remuneration to Expatriate Faculty
•
Payments for current account transaction are permissible on an automatic basis, unless
the same are specifically prohibited
•
Payment for consultancy services procured from outside India up to US$ 1 million per
project is permitted on an automatic basis.
•
Salary paid to a foreign citizen on deputation to a subsidiary /joint venture in India
should be permissible to receive the whole salary for the services rendered to the
subsidiary/joint venture in India, outside India provided that income-tax is paid on the
entire salary which accrues in India
Remuneration to expatriate faculty should be permissible
6
© Deloitte & Touche LLP and affiliated entities.
Income-tax Act, 1961
© Deloitte & Touche LLP and affiliated entities.
Broad Indian Tax Framework
Tax Rates in
India
Corporate Tax
Rates
No PE^ in
India – No
corporate
tax in India
Domestic
company
@ 33.22%
Foreign
company
@ 42.23%
^ PE – permanent establishment
^^ DDT – Dividend Distribution Tax
8
Tax on Sale of
Shares
Long term
capital
gains
exempt
(transfer
on Indian
stock
exchange)
Short term
capital
gains
@ 16.61%
or
15.84%*
(transfer
on Indian
stock
exchange)
Long term
capital
gains @
22.15% or
21.12%*;
Short term
capital
gains @
33.22% or
42.23%*
If investment is held for more than 1
year, then long term; else short term
Tax on
Repatriation
Dividend
Exempt
(DDT^^ @
16.61%
leviable on
distributor)
Interest
@
21.12%*
(or lower
rate as per
tax treaty)
Royalty
@
10.56%*
(or lower
rate as per
tax treaty)
* Rates for Foreign company
© Deloitte & Touche LLP and affiliated entities.
Other Tax Considerations
© Deloitte & Touche LLP and affiliated entities.
Other Considerations
• Canada – India Tax Treaty
‒ Potential impact on taxation of services provided
‒ Taxation of services provided by foreign individuals
• The DTC is proposed to come into effect from 1 April 2011 in place of the
current ITA
‒ Impact on taxation of not for profit educational institutions
10
© Deloitte & Touche LLP and affiliated entities.
Foreign Educational
Institutions (Regulation of
Entry and Operations)
Bill, 2010
© Deloitte & Touche LLP and affiliated entities.
The Foreign Educational Institutions (Regulation of Entry
and Operations) Bill, 2010
The Human Resource Development Minister has released the Bill on 19th April
2010 for regulating the entry and operation of foreign educational institutions in
India. The Bill would become an Act if it is approved by the both houses of the
Indian Parliament.
Certain key highlights of the Bill are as follows:
•
To set up a campus in India, a Foreign Educational Institutions (FEI) should be
recognized and notified by the Central Government as a foreign education
service provider.
•
The FEI would need to submit an application to the Registrar, along with the
specified documents to the effect that:
 The FEI has been established and has been offering educational services for at least
20 years under the laws of Canada.
 Status of accreditation from the accrediting agency in Canada.
 The FEI has adequate financial and other resources for conducting the course in India.
 An undertaking that the FEI would maintain a corpus of not less than INR 500 Million
($12 million).
12
© Deloitte & Touche LLP and affiliated entities.
The Foreign Educational Institutions (Regulation of Entry
and Operations) Bill, 2010
•
The educational entity incorporated as an Indian Company (‘IC’) would need to
offer and impart education programs in conformity with the standards laid down
by the statutory authority enacted under the Central Act.
•
Up to 75% of the income received from the corpus fund can be used by the IC
for the purpose of development of the educational entity in India. The balance
unutilized income shall be deposited in the corpus fund.
•
Surplus in revenue generated in India (after meeting expenses in connection
with operations in India) would need to be invested only for growth and
development of the educational entity established in India.
•
FEI which are not notified by the Central Government which impart education
leading to award of a certificate, not being a degree or diploma shall furnish a
report of its activities in a format as may be specified
13
© Deloitte & Touche LLP and affiliated entities.
Setting up an Educational
Institution
- Alternative Entities
© Deloitte & Touche LLP and affiliated entities.
14
Educational Institution in India – Possible Entity Structures
Alternatives available to set up the
Foreign educational institution
Society
 Regulated by Society
Registration Act,1860
 Minimum number of
members required = 7
 Main instrument of
any society is the
memorandum of
association and rules
and regulations
 Profits cannot be
taken out of the
institution and have to
be reinvested
15
Not for Profit Company/
Section 25 Company
Trust
 Regulated by Indian Trust Act,1882/ State
Trust Act
Companies Act,1956
 Trust may be created by every person
 Main instrument is a
competent to contract
Memorandum and
Articles of Association
 Main instrument of any public charitable
trust is the trust deed.
 The profits, if any, or
 Application for registration should be
made to the official having jurisdiction
over the region in which the trust is sought
to be registered
 Reserve Bank of India approval would
 Governed by Indian
other income must be
applied for promoting the
objects of the company
 No dividend pay-out to
its members
have to be obtained to allow non
residents/ foreign citizens as trustees
© Deloitte & Touche LLP and affiliated entities.
Company vis-à-vis trust/ society
Key Attributes
Company
Trust/ Society
100 % Foreign Investment
Possible
Not Possible
Reporting Requirements
Reports to the Registrar of
Companies
Trustee has to submit budget to
Charity Commissioner (‘CC’)
Allowability of non residents/
citizens on the Board/ acting
as trustees
No specific approval from
exchange control required to have
non residents/ foreign citizens on
the Board
Non residents/ foreign citizens
acting as trustees would require
exchange control approval.
Administration
No specific powers to Registrar of
Companies with regard to
administration.
CC is empowered to issue
directions for proper administration
of the affairs of the trust , the
working of the trust is subject to
inspection and supervision of CC
Foreign Donations and
Receipts
Registration with the FCRA and
yearly intimation of foreign
donations and receipts
Registration with the FCRA and
yearly intimation of foreign
donations and receipts
16
© Deloitte & Touche LLP and affiliated entities.
Contacts
Arvind Vijh
416-643-8990
[email protected]
Rajiv Mathur
416-643-8920
[email protected]
© Deloitte & Touche LLP and affiliated entities.
© Deloitte & Touche LLP and affiliated entities.