TAXATION SYSTEM IN INDIA
has a well-developed tax structure with clearly
demarcated authority between Central and State
Governments and local bodies.
Government levies taxes on income (except tax
on agricultural income, which the State Governments
can levy), customs duties, central excise and
Added Tax (VAT), stamp duty, state excise, land
revenue and profession tax are levied by the State
bodies are empowered to levy tax on properties,
octroi and for utilities like water supply, drainage
taxation system has undergone tremendous reforms
during the last decade. The tax rates have been
rationalized and tax laws have been simplified
resulting in better compliance, ease of tax payment
and better enforcement. The process of rationalization
of tax administration is ongoing in India.
case of direct taxes (income tax, wealth tax,
etc.), the burden directly falls on the taxpayer.
to Income Tax Act 1961, every person, who is an
assessee and whose total income exceeds the maximum
exemption limit, shall be chargeable to the income
tax at the rate or rates prescribed in the Finance
Act. Such income tax shall be paid on the total
income of the previous year in the relevant assessment
means a person by whom (any tax) or any other sum of
money is payable under the Income Tax Act, and includes
Every person in respect of whom any proceeding
under the Income Tax Act has been taken for the
assessment of his income (or assessment of fringe
benefits) or of the income of any other person
in respect of which he is assessable, or of the
loss sustained by him or by such other person,
or of the amount of refund due to him or to such
Every person who is deemed to be an assessee under
any provisions of the Income Tax Act;
Every person who is deemed to be an assessee in
default under any provision of the Income Tax
a person includes:
- Hindu Undivided Family
- Association of persons
- Body of individuals
- A local authority and,
- Every artificial judicial
person not falling within any of the preceding
tax is an annual tax imposed separately for each
assessment year (also called the tax year). Assessment
year commences from 1st April and ends on the
next 31st March.
total income of an individual is determined on
the basis of his residential status in India.
For tax purposes, an individual may be resident,
nonresident or not ordinarily resident.
individual is treated as resident in a year if
present in India:
For 182 days during the year or
2. For 60 days during the year and 365 days during
the preceding four years. Individuals fulfilling
neither of these conditions are nonresidents.
(The rules are slightly more liberal for Indian
citizens residing abroad or leaving India for
Resident but not Ordinarily Resident
who was not present in India for 730 days during
the preceding seven years or who was nonresident
in nine out of ten preceding years is treated
as not ordinarily resident.
are taxed only on income that is received in India
or arises or is deemed to arise in India. A person
not ordinarily resident is taxed like a non-resident
but is also liable to tax on income accruing abroad
if it is from a business controlled in or a profession
set up in India.
Indians (NRIs) 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. It is possible for non-resident
Indians to avail of these special provisions even
after becoming residents by following certain
procedures laid down by the Income Tax act.
|Resident and ordinarily
|Resident but not