Income Tax in India

A guide to the personal income taxes that an individual in India may be liable to pay…

For income tax purposes, a person is considered to be resident in India if they fulfil one of the following conditions:

  • They were in India for at least 182 days during the previous tax year (1 April to 31 March)
  • They were in India for at least 60 days during the previous tax year and for at least 365 days during the preceding four years

Residents are divided into two categories:

  • Resident but not ordinarily resident – this applies to an individual who has been a non-resident in India for nine out of the 10 previous years or has been in India for no more than 729 days during the preceding seven years
  • Resident and ordinarily resident – individuals to whom the two conditions above do not apply

Taxable Income

The types of income on which an individual can be taxed depend on their residential status:

  • Individuals who are resident and ordinarily resident are liable to pay tax on all income received or accrued in India and outside India, as well as from any other sources (see below)
  • Individuals who are resident but not ordinarily resident are liable to pay tax on all income received or accrued in India and outside India (but not on that from other sources)
  • Individuals who are non-residents are liable to pay tax on all income received or accrued in India (but not on income accrued outside India, or from any other source)

The following types of income are taxable:

  • Salary
  • Income from property
  • Business profits
  • Capital gains
  • Income from other sources, including dividends and lotteries, and gifts from non-relatives

A staff member contributes a sum to the Employees’ Provident Fund Organisation (see Social Security) every month that is usually equivalent to 12 percent of their salary. This amount is matched by the employer. Since the employer contributes to the fund on the employee’s behalf, it is treated as salary income.

Deductions and allowances

When calculating an individual’s total income, certain deductions are allowed, including life insurance premiums, deferred annuities, contributions to the Employees’ Provident Fund Organisation and subscriptions to certain equity shares. Disabled people also benefit from certain deductions. For more information: Click here

Allowances paid by an employer for the purpose of meeting certain requirements of the employee are either taxable, fully exempted or partially exempted. There is a long list of possible allowances including housing, travel, bonuses, entertainment, education and clothing. The government’s Income Tax Department provides further details: Click here

Taxation Process

An employer is responsible for assessing the income tax liability of employees. Rates vary from 10 percent to 30 percent. For Income Tax India’s tax calculator: Click here

The employer deducts tax from an employee’s salary on a monthly or quarterly basis and pays it to the government. This is called “tax deducted at source”.

Income tax returns must be filed by 31 July. This can be done through the services of an accountant or online: Click here

A permanent account number (PAN) is needed to file a return. For more information on how to apply for a PAN card: Click here or here.

All other relevant forms regarding income tax are available on the Income Tax India website: Click here

Foreign Residents

Foreign residents working in India may be liable to pay tax in their country of origin. This depends on the individual’s residence status, the tax laws in their own country and whether the country has a double taxation agreement with India. If this is the case, they can avoid paying taxes in each country.

  • For a list of countries that have an international taxation agreement with India: Click here

 

Disclaimer

Any statements concerning taxation are based upon our understanding of current taxation laws and practices in India which are subject to change. While every effort has been made to offer information that is current, correct and clearly expressed the publisher is not responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. Readers are encouraged to seek professional advice concerning specific matters before making any decision.