India has turned out to be a vital investment destination for Japanese business houses, who want to increase their footprint globally. Still, there is a complex tax and accounting framework that has to be navigated, and the slightest mistake could land one in big legal and financial trouble. Therefore, knowing about India’s tax and accounting regime may be crucial to avoid trouble with the Indian taxation authorities and even ease the procedure further with an accounting firm in India with Japanese support, ensuring seamless compliance and guidance.
India’s Accounting and Taxation System
The Income Tax Act, 1961, and the Goods and Services Tax (GST) Act, 2017 regulate the country’s tax and accounting system. The tax and accounting system of India is subject to the following for Indian businesses:
- Corporate Taxation: These are taxes on companies that have income in India.
- TDS (Tax Deducted at Source): A source of collecting tax at the source of income.
- GST Compliance: For business turnover above a certain limit.
- Accounting Standards: Indian Accounting Standards (Ind AS) and Generally Accepted Accounting Principles (GAAP).
Key Compliance Requirements for Japanese Businesses in India
1. Corporate Taxation Compliance
Japanese businesses need to register under India accounting regulations and file income tax returns annually. Corporate tax rates depend on company structure:
| Company Type | Tax Rate |
| Domestic Company (Turnover < ₹400 Cr) | 25% |
| Domestic Company (Turnover > ₹400 Cr) | 30% |
| Foreign Company | 40% |
Example: A Japanese electronics company, having a base in India with a revenue generation of ₹500 crores is liable to pay a 30% corporate tax on its income liable for taxation.
2. TDS India
TDS India is a way where the tax is raised at the source level. Key TDS India percentages used on NRIs are as follows:
| Type of Payment | TDS Percentage |
| Professional Charge | 10% |
| Royalty Receipt | 10% |
| Interest on Loan | 5% |
Example: A Japanese IT consultancy company has hired an Indian consultant for an amount of ₹5 lakh and will be deducting 10% TDS of ₹50,000 before the actual payment.
3. GST Compliance
Japanese businesses with an annual turnover of more than ₹20 lakh are required to register for GST. GST rates differ according to the category of product or service.
Example: A Japanese automobile company importing car parts to India is required to charge applicable GST on sales and claim an input tax credit for GST paid on imports.
4. Financial Reporting & Audit Requirements
Indian law mandates that businesses maintain accurate books of accounts and mandatorily get audited in the following circumstances:
- Annual turnover is in excess of ₹1 crore if the company falls under the category of a business or ₹50 lakh if it comes under professionals.
- The company is governed by Transfer Pricing Regulations in case of cross-border transactions.
Challenges for Japanese Companies Operating in India
- Complex Tax Law: Tax laws are redundant, creating the problem of rapidly changing
- Language Problem: Major compliance documents are in English, and most Japanese companies face this hurdle.
- Cultural Difference: The regulatory environment of India is light years away from Japan.
- Regulatory Delay: Tax clearances and licenses will take some time.
How Accounting Firm in India With Japanese Support May Help
Japanese companies can gain the advantage of dedicated Japanese expertise in India through an accounting firm that has the experience of servicing international clients.
KNM India Services
The accounting firm, KNM with Japanese support in India offers end-to-end financial and tax compliance services in the following ways:
- TDS India Compliance: Correct TDS deductions and filings.
- GST Registration & Filing: Tax liability and return management.
- Accounting & Bookkeeping: Maintaining records as per Indian laws.
- Transfer Pricing Advisory: Ensure compliance in cross-border transactions.
- Financial Audits: Statutory and internal audit.
- Payroll Processing: Manage salaries, PF, and tax deductions.
FAQs on Tax and Accounting Compliance in India for Japanese Businesses
1. Does a Japanese company need to compulsorily register for GST in India?
Yes, if the company’s turnover is more than ₹20 lakh or if it is supplying taxable goods or services.
2. Mistakes of Indian taxation by Japanese businesses
- Mistakes regarding TDS that lead to penalty.
- Delayed filing of tax leading to fine
- Misclassification of GST rates leads to compliance problems
3. How does DTAA help the Japanese companies in India?
DTAA ensures that the same income is not taxed twice in both Japan and India.
4. Does KNM India provide Japanese language support?
Yes, Japanese companies can get special support in terms of Japanese along with compliance documents being prepared in Japanese.
Conclusion
Japanese companies engaged in Indian operations face a really complex tax and accounting environment. Outsourcing with an accounting firm with Japanese support in India such as KNM ensures seamless compliance with India accounting regulations, TDS India requirements, and GST laws. Even under expert guidance, Japanese companies can continue their expansion while still being compliant.
Email us at: services@knmindia.com
Call us at:
- India: +91-124 -4295170
- Tokyo: + 81-3-6869-0850
Visit our website: KNM India – Management Advisory Services
Take the next step towards expanding your business in India! Contact us today for a personalized consultation and let KNM India be your trusted partner in growth.
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