Manufacture of telecom equipment

     Manufacture of telecom equipment has been freed from industrial licensing.

     No approval is required for foreign equity participation upto 51 percent in an Indian company engaged in manufacture of telecom equipment.

     Dividend income and capital invested is fully repatriable.

     Technical know-how fee of upto US$ 2 million, net of taxes can be paid on an automatic basis. In addition, royalties upto

     5 percent on domestic sales and 8 percent on export sales, are also permitted.

     Specific approval can be sought from the FIPB for foreign equity participation in excess of 51 percent and for payment of a higher amount of technical know-how fee.

     Foreign investment in Indian companies providing telecom services can be made with the approval of the FIPB. Maximum foreign equity permitted in telecom services sector is as follows: Basic, Cellular, Paging, V-SAT, 49 % Mobile Radio Trunking, Internet E-mail, Voice Mail, On Line Information and 51 % Data Retrieval, and On Line Information and/or data processing, Enhanced/Value Added Facsimile Service including Store and Forward, Store and Retrieve Investment companies set up for investments in 49 % telecom services companies (Investments by these companies in a telecom services company is treated as part of domestic equity and is not set off against the foreign equity cap)

     Dividend income and capital invested is fully repatriable.

     Telecom services companies are not permitted to make royalty payments.

Incentives for Telecom Services Sector

     License fee paid by telecom service providers is eligible for amortisation for tax purposes.

     Licenses to provide telecom services can be assigned.

     Limit of External Commercial Borrowings (foreign currency debt) by telecom services companies has been raised to 50 percent of the project cost (including license fee).

     Investments in equity shares and debentures of telecom services companies qualify for tax rebate.

     Telecom services companies enjoy 100 percent tax holiday for a period of 5 years and 30 percent for further period of 5 years during the first 15 years from commencement of business.

     Import of specified telecom equipment is permitted at concessional customs duty rates.

     Import of all capital goods for manufacturing telecom equipment does not require any license.

In order to encourage exports, the Government of India offers special incentives to investors to set up units to manufacture goods predominantly for exports. Such units may be set up in Export Processing Zones (EPZ), Software Technology Parks (STP), Electronic Hardware Technology Parks (EHTP) or as 100 percent Export Oriented Units (EOU) outside the designated areas. 100 percent foreign equity is welcome in such units.

The EPZ/STP/EHTP are designed to provide an internationally competitive duty-free environment at low cost for export production. These provide basic infrastructure and facilities like developed land, standard design factory buildings, roads, power, water supply and drainage and customs clearance facilities. While EOUs adopt the same regime as EPZs/STPs/EHTPs, it offers a wider option in project location with reference to sourcing of raw materials, port of export, availability of technological skill, existence of an industrial base and the need for a larger area of land for the project.

Incentives for EPZs and EOUs

     Exemption from customs duty on industrial inputs.

     No import licences required.

     Supplies from the Domestic Tariff Area to EOUs/EPZ units regarded as deemed exports and hence exempt from payment of excise duty.

     Exempted from payment of corporate income tax for ten consecutive years. Export earnings exempt from tax even after the tax holiday is over.

Other Incentives for Exporters

     10 year income tax holiday for EOU/EPZ/STP/EHTP units.

     Export income is exempt from income tax for all exporters.

     Under the Export Promotion Capital Goods Scheme (EPCG) capital goods can be imported at a concessional rate as follows-

     10% duty with an obligation to export four times CIF value of capital goods in five years.

     Nil duty (in case CIF value is Rs 200 million or more) with export obligation of six times CIF value of capital goods in eight years.

     Nil duty (in case CIF vale is Rs 10 million or more) on import of capital goods for electronics (and some other specified sectors) with export obligation of 6 times CIF value of capital goods in six years.

     Nil duty (in case CIF value is Rs 1 million or more) for software sector with export obligation of six times CIF value of capital goods in six years.