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QUICK LOOK
- Taxes in India are of two
types, Direct Tax and Indirect Tax.
- Direct Tax, like income tax,
wealth tax, etc. are those whose burden falls directly on the
taxpayer.
- The burden of indirect taxes,
like service tax, VAT, etc. can be passed on to a third party.
Income Tax is all income other than
agricultural income levied and collected by the central government and
shared with the states.
According 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 year.
The total income of an individual is determined on the basis of his
residential status in India.
Residence Rules
An individual is treated as resident in a year if present in India
- for 182 days during the year or
- 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
employment abroad.)
A 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 yeas I treated as not
ordinarily resident. In effect, a newcomer to India remains not
ordinarily resident.
For tax purposes, an individual may be resident, nonresident or not
ordinarily resident.
Non-Residents and Non-Resident Indians
Residents are on worldwide income. Nonresidents 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 nonresident 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.
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.
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.
Taxability of individuals is summarised in the table below
| Status |
Indian
Income |
Foreign
Income |
| Resident
and ordinarily resident |
Taxable |
Taxable |
| Resident
but not ordinary resident |
Taxable |
Not
Taxable |
| Non-Resident |
Taxable |
Not
Taxable |
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