Income Tax in India- General Overview

Income Tax
Income Tax is all income other than agricultural income levied and collected by the central government and shared with the states. As per Income Tax Act 1961, every person, whose net income exceeds the exemption limit comes under the tax net and he shall be charged 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.

There are two types of taxes in India- Direct Tax and Indirect Tax.

• In direct tax, burden falls directly on the taxpayer. Example of direct taxes are: income tax, wealth tax, etc. are those whose
• In indirect taxes the burden can be transferred to the third party. Examples of Indirect taxes are:
  service tax, VAT, etc. can be passed on to a third party.
  

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 years is treated as not ordinarily resident. In effect, a newcomer to India remains not ordinarily resident.

For the purpose of tax, an individual may be resident, nonresident or not ordinarily resident.

Non-Residents and Non-Resident Indians

• Residents are charged tax on worldwide income. Whereas 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 an Individual