INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
1. Tax 1.1 Tax Regimes
• has been a non-resident in nine out of the ten financial years preceding the relevant financial year; or • has not been in India for an overall period of 729 days during seven financial years preceding the relevant financial year. Further, if an Indian citizen or PIO becomes a resident of India upon exceeding 120 days’ stay in India (but does not stay in India for more than 182 days), then such person would also qualify as a RNOR. Similarly, where an Indian citizen becomes a resident under the deemed residency rules, then such person would also qualify as a RNOR. While Indian residents are typically taxed on their global income, non-residents are liable to pay income tax only on India-sourced income. Any income which is received or deemed to be received in India or has accrued or arisen or is deemed to accrue or arise in India shall be considered as India-sourced income. RNORs are taxed on their India-sourced income and such foreign income which is derived from a business controlled, or a profession set up, in India. Under the ITA, income tax is levied under the following broad categories: • salaries; • income from house property; • profits and gains from business or profession; • capital gains; and • income from other sources. Income tax rates vary according to the age and applicable tax bracket of the taxpayer. There are two regimes for taxation: (i) new regime (default regime) and (ii) old regime. The current rates of the tax bracket for all individuals below 60 years of age under the new regime and old regime are as follows: In the old regime (excluding applicable surcharges and cess): • individuals who earned up to INR250,000 paid no tax;
All direct tax-related aspects fall under the Income Tax Act, 1961 (ITA), together with all applicable by-laws, rules, regulations, orders, ordinances, directives and
the like issued thereunder. Taxation for Individuals
As per the ITA, individuals are subject to tax in India based on their residential status in India. Individuals can be classified as: • residents; • non-residents; or • resident but not ordinarily resident (RNOR). An individual is considered to be tax-resident in India in any year if: • the individual stays in India for a period of 182 days or more in a financial year; or • the individual stays in India for a period of 60 days or more in a financial year and 365 days or more during the preceding four financial years. In the case of an Indian citizen or persons of Indian origin (PIO) who visits India during the year, or an Indi - an citizen who leaves India in any financial year as a crew member of an Indian ship or for the purpose of employment outside India, the requirement of having to spend 60 days or more is taken as 182 days. However, in the case of an Indian citizen or a PIO whose total income (excluding foreign-source income), exceeds INR1.5 million during the relevant financial year, the period of 182 days is reduced to 120 days. Additionally, an Indian whose total income (exclud - ing foreign-source income), exceeds INR1.5 million during the relevant financial year, is deemed to be a resident of India if he/she is not “liable to tax” in any other country by reason of domicile or residence or any other criteria of a similar nature. A tax resident of India is considered to be RNOR if such a taxpayer:
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