India tax system - taxation of indian companies and individuals: VAT, income tax and capital gains. Tax treaties of India.

Basic taxes (briefly)

Personal tax 5-30%
Corporate tax (in detail) At the base rate of 22%, the effective rate, taking into account the additional tax and levies on medicine and education, will be 25.17%.
Capital gains tax. Details
VAT. Details Goods and Services Tax (GST) - similar to VAT. The tax is levied at the federal and state levels. Tax rates, as a rule, vary between 5% and 28%, the main rate is 18%
Other taxes Social Contributions, Securities Tax, Property Tax
Government fee
Stamp duty уплачивается при сделках с имуществом

International tax agreement

Albania, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Bhutan, Botswana, Brazil, Bulgaria, Canada, China, Chinese Taipei (Taiwan), Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Fiji, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Republic of Korea, Kuwait, Kyrgyz Republic, Latvia, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Tajikistan, Tanzania, Thailand, Trinidad & Tobago, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Vietnam, Zambia
   
Bermuda, British Virgin Islands, Isle of Man, Bahamas, Cayman Islands


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Taxation of natural persons

The taxation of individuals depends on their status:

  • a tax resident ordinarily resident pays tax on their worldwide income;
  • a tax resident not ordinarily resident pays tax on income arising in India and foreign income earned in India;
  • a tax non-resident pays tax on income from sources in India.

Income tax is levied at the following rates:

  • income up to INR 250,000 - 0%;
  • income from INR 250,000 to INR 500,000 - 5%;
  • income from INR 500,000 to INR 1,000,000 - 20%;
  • income over INR 1,000,000 - 30%.

Taxpayers have the right to choose a different scale of taxation (in which case certain tax deductions are lost)

  • income up to INR 250,000 - 0%;
  • income from INR 250,000 to INR 500,000 - 5%;
  • income from INR 500,000 to INR 750,000 - 10%;
  • income from INR 750,000 to INR 1,000,000 - 15%;
  • income from INR 1,000,000 to INR 1,250,000 - 20%;
  • income from INR 1,250,000 to INR 1,500,000 - 25%;
  • income over INR 1,500,000 - 30%.

Taxpayers whose income exceeds Rs 5 million are charged additional tax:

For income between INR 5,000,000 and INR 10,000,000 at the rate of 10%:

  • INR 10,000,000 to INR 20,000,000 - at a rate of 15%;
  • INR 20,000,000 to INR 50,000,000 - at a rate of 25%;
  • INR 50,000,000 over INR 37%.

There is a medical and education levy at the rate of 4% on the amount of tax and additional tax.

Residents with income up to INR 500,000,000 can get a tax refund or INR 12,000 if the tax exceeds this amount.

An alternative minimum tax applies to persons engaged in business.

Dividends are included in taxable income.

Gains on disposal of assets with a holding period of up to 36 months (12 months for Indian listed securities, 24 months for real estate and non-cotributable shares) are included in taxable income, taxable generally at ordinary rates.

Gains on disposal of assets with a holding period exceeding the aforesaid periods are computed under special rules and taxed at preferential rates.

Income tax

Indian companies pay income tax on their worldwide income, foreign companies pay tax on income from sources in India.

The basic rate of income tax for Indian companies is 25% unless they make use of special exemptions, and 15% for newly established industrial companies. An additional tax at the rate of 10% is payable on the amount of income tax.

For other Indian companies the tax rate is 30% and additional tax rate is 7% or 12% on total turnover in excess of certain thresholds.

Base tax rate for foreign companies is 40% and additional tax rate is 2% or 5% on total turnover in excess of certain thresholds. There is a 4% levy on health and education from the basic and additional tax.

There is a minimum alternative tax at a rate of 15% on accounting profits.

Profits from the disposal of assets under short-term holdings are generally taxed at the normal tax rates.

There are exceptions, in particular, gains on the disposal of transferable shares are taxed at 15% (plus medical and education levy).

Gains on the disposal of assets when held for more than 36 months (12 months for negotiable securities, 24 months for non-negotiable shares) are taxed at special preferential tax rates and value-indexed.

Dividends received are taxed at general tax rates. Dividends distributed are generally allowed to be deducted from dividends received in order to eliminate multiple taxation.

CFC rules

There are no CFC rules in India yet.

Withholding tax on income

Tax is withheld at 20% on payment of dividends, interest generally at 20% (the rate is reduced to 5% in many cases), royalties at 10%.

Tax rates are reduced according to the provisions of double taxation avoidance agreements (DTAs).

Goods and services tax (GST)

GST is similar to VAT. The tax is levied at federal and state level.

The tax rates generally vary between 5% and 28%, the basic rate being 18%.

Social contributions

The payment of social security contributions is obligatory for companies with at least 20 employees. Contributions may also be paid voluntarily.

Employees must pay, as a rule, a contribution at the rate of 12 %.

Employers also pay a contribution at the rate of 12% if the employee's remuneration is up to 15,000 INR per month (the limit does not apply to foreign employees).

There are mandatory health insurance contributions for businesses with at least 10 employees as a rule. The contribution is payable on employee remuneration up to INR 21,000 per month at a rate of 1.75% for employees and 4.75% for employers.

In general, a small proportion of the population is covered by social security.

Stamp duty

Stamp duty is payable on transactions involving property.

Rates are generally set at the state level.

Tax on transactions in securities

The tax is paid on transactions involving quoted shares and certain other financial instruments.

Rates range from 0.001% to 0.125%.

Property tax

The tax rates depend on the location of the property and are set by the local authorities.

International tax treaties

India has entered into 96 Double Tax Treaties (DTC) and 4 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:

96 DTCs: Albania, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Bhutan, Botswana, Brazil, Bulgaria, Canada, China, Chinese Taipei (Taiwan), Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Fiji, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Republic of Korea, Kuwait, Kyrgyz Republic, Latvia, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Tajikistan, Tanzania, Thailand, Trinidad & Tobago, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Vietnam, Zambia.

4 TIEAs: Bermuda, British Virgin Islands, Isle of Man, Bahamas, Cayman Islands.

India has also signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for India on October 1, 2019.

Currency controls

In India, there are specific implementation rules and certain restrictions on foreign exchange transactions.

    Taxes of India

    Min. rate for corporate tax 25,17%
    Capital gains tax Regular rate
    VAT 18%
    Withholding tax 20%/20%/10%
    Exchange control Yes
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