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Partial update, April 2009
- The tax in India on an individual's income is progressive. For the financial year 2008-2009, an individual's income is taxed progressively at 10% - 30%. A 10% surcharge is imposed on the tax, subject to legally specified limits and an education tax (CESS) of 3%.
- A limited company in India is liable for tax in the financial year 2008-2009 at the rate of 30% for a local company and 40% for a foreign company with the addition of surcharge (for income above INR 10 millions, 10% for domestic companies, 2.5% for foreign companies) as well as an education tax (CESS) of 3%. The top effective tax rate in India is 33.99% for a local company and 42.23 % for a foreign company.
- Companies in India whose tax liability is less than 10% of the "book profits" pay a 10% minimum alternative tax, MAT on the "book profits" with a surcharge of 10%, and cess of 3%.
India Capital Gains
Capital gains for companies and individuals in India are divided into 2 groups, long term capital gains and short term capital gain.
- Long term capital gains relate to the sale of an asset that has been held for 3 years or longer (on the sale of negotiable securities on the Indian Stock Exchange, shares that have been held for over a year).
When the asset has been held for a shorter period than that defined as long term, the capital gain is deemed to be a short term gain.
- The long term tax rate is 20%, and, for purposes of calculation, the cost is adjusted to the increase in the Index and deducted from the proceeds.
- Capital gains from the sale of long term negotiable securities on the Indian Stock Exchange are tax exempt.
- A short term capital gain is added to regular income. At the same time a capital gains on the sale of negotiable securities on the Stock Exchange is taxed at 15% for individuals.
Table of Income Tax Rates in India for an Individual 2008-2009
| Tax % |
Income (INR) |
| 0%
| 1 - 150,000 |
| 10% |
150,001-300,000 |
| 20% |
300,001-500,000 |
| 30% |
500,001 and above |
- A 10% "surcharge" is applicable to income in excess of INR 1,000,000 for 2008-2009.
- There is an "Education tax" (CESS) of 3% so that the maximum effective tax is 33.99%.
India Overseas Income
- An individual and company who are Indian residents are also taxed on their income outside India and receive a credit for overseas taxes
- Qualification for residence for an individual:
residence in India of at least 182 days in the tax year,
or: residence in India at least 60 days in the tax year and at least 365 days in the 4 previous years.
- An Indian resident is also taxed on his income overseas.
India Reporting Dates and Payment
- The tax year in India begins on April 1 and ends on March 31.
- An individual whose income is from a business must submit an annual return by October 31. There is a fine of 10% of the tax payable for each month's delay.
- An individual whose income is from a wage or whose income is subject to a deduction of tax at source, is exempt from submitting an annual return.
- An advance payment must be made on 3 dates - September 15, December 15 and March 15.
- There is an official body in India that deals with the subject of pre-ruling in connection with tax problems that are presented for discussion.
India Deduction of Tax at Source
Taxation of Employees
- An employer is obligated to deduct tax at source on a monthly basis from a salaried employee and to make additional contributions to a provident fund and insurance.
- The employer's contribution to national insurance in India for an insurance plan is 4.75% of the salary. The employee's contribution is 1.75% of his salary.
- The Indian employer's contribution to provident fund is 10-12%.
India Other deductions
The following payments are subject, in India, to a deduction of tax at source:
- Dividend - 0%.
- Interest - 20%. payment to companies. 10% - to others.
- Royalties - 10%.
Comments:The deduction at source for payments to foreign residents is subject to the Double Tax Prevention Treaty to which India is a signatory.
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