Taxation of individuals is determined by their residential status.
An individual is 'resident' if he stays in India in the fiscal yer (April 1 to March 31) either:
An individual who does not satisfy either of these requirements is a 'non-resident'.
A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been resident in India for nine out of the previous ten years and, in addition, has been in India for a total of 730 days or more in the previous seven years. Residents who do not satisfy these conditions are called individuals 'not ordinarily resident'. Taxability of individuals is summarised in the table below.
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Status Indian Foreign
income income
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Resident and ordinarily
resident Taxable Taxable
Resident but not ordinarily Taxable Not taxable
resident
Non-Resident Taxable Not taxable
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Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pension, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Allowances, deferred compensation and tax equalisation are also taxable. Perquisistes are taxes beneficially.
Besides remuneration for work, individuals may be taxed on the following income:
Individual tax rates
---------------------------------------------------------------------- Taxable income Rate slab (Rs.) (%) ---------------------------------------------------------------------- Upto 40,000 Nil 40,001 - 60,000 20 60,001 - 120,000 30 120,001 upwards 40 ----------------------------------------------------------------------
Spouses are treated separately for tax purposes and their income is not normally clubbed. However, income of all minors, except handicapped minors, is clubbed with the income of their parents unless the income is derived from manual work or an activity involving skill, specialised knowledge and experience.
The Finance Act, 1994 has increased the income tax exemption limit, and abolished surcharge on income tax for individuals.
To widen the tax base, the union budget for 1995-95, made a new provision in the Income-Tax act subjecting the sums payable by way of fees for professional or technical services to the requirement of deduction of income-tax at source at the rate of 10%. There will be no deduction of tax at source where the aggregate of payments or credits during the financial year is below Rs.22,000 or where payments are made by individuals and HUF's.
When the income of an NRI consists only of investment income or income from long-term capital gains, the tax payable is at the rate of 20 per cent.
Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases.
Non-resident Indians are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source. The tax rate on such income is 20 per cent.
It is possible for non-resident Indians to avail of these special provisions even after becoming residents by following certian procedures laid down by the Income Tax act.
Centre for Monitoring Indian Economy, Bombay
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Last updated: August 1995.