India’s Taxation – a Story of Indian Tax Rates and Rules:


Many foreign investors have reservations about the Indian Tax System as they feel it is too complicated and hard on them. But in reality, things have been streamlined in recent years to provide lucrative opportunities for direct inflow of investments. Globalization and need to get more money from abroad up and running has made the tax structure and system more investment friendly than in the past.

Clearly demarcated tax structure

Among the countries in South Asia you are looking for investing, India is the best bet as it has a highly organized and developed tax structure. The amount that needs to be paid is clearly separated and managed by the state, central and the local authorities. All taxes on income are levied by the central government including excise and custom duties, tax on services, but the state governments are only empowered to tax income from agriculture.

Tax administration and rationalization has been going on in India for the last 10 years leading to better simplification, compliance and enforcement. The Indian Income tax department has got most of the tax return filing online, making it simpler for the tax payers. Excise duties, professional tax, value added tax, land revenue and stamp duty on real estate buying fall under the purview of the states while taxes on properties, water and other utilities are levied by local authorities. Even though things are better nowadays on the tax front, the process of streamlining them as well as making them easy to follow is very much on.

If you are planning to start a company in India, taxes are levied on all incomes earned from global and domestic operations.  Those companies that are non-resident, are taxed on the basis of their incomes earned form their operations in India. Companies are termed resident when their offices and managed are based in India. Indian companies or corporations pay 35% tax and a surcharge of 2.5% while those based abroad require paying 40% and a surcharge of 2.5%. You have to pay a surcharge of 2% on your tax payables known as a cess on education.

Every budget has lucrative benefits

There are always something lucrative and new that comes out with each year’s budget much to the delight of investors wanting to park their funds in India. For those corporations that have taxable incomes of Rs.1 crore or less need not pay the surcharge anymore. Investors usually delight in the new incentives that are liberally showered to get more investments flowing in from abroad. You can also benefit from tax holidays in some areas in India that could extend for five years. But the rate of dividend tax has been raised by 2.5% while the mutual fund companies have to pay nearly 25%.

As the government is gearing up for developing education among the backward classes of India, educational cess and charges are levied on investors and companies. Capital gains taxes are charged both for the short term and long term. Long term capital gains tax becomes applicable for assets that are with you for three years or more, but for shares and mutual finds the period is for one year.

But the sale of equities and mutual funds are exempt from tax while for other capital gains that are long term, the rate is a basic 20%. Normal rate for corporate taxes apply for short term gains while for equities and mutual funds the rate is 10%.

For individual income tax, the slabs change with every budget taking into consideration the utmost needs of taxpayers in that given year. There are lots of relief options for assesses in every given year to take advantage of several tax saving schemes that are always available and they are very much a part of the Indian tax system.

Please remember that this article just gives you some basic outline as to how the tax in India works, however in order to have in-depth knowledge on various taxes like service tax, wealth tax, India income tax you need to consult a professional legal consultant also known as chartered accountants (CAs). Also be advised that for you to file taxes in India one needs to have a PAN card (permanent account number) or TAN number.

>> Email me – if you want to File TAX OR have Questions.!!

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