Taxation of individuals in India is primarily based on their residential status in the relevant tax year. The residential status of individuals is determined independently for each tax year and is ascertained on the basis of their physical presence in India during the relevant tax year and past years. See the Residence section for more information.
The following types of residential status are envisaged for an individual:
- Resident in India, which is further divided into the following two categories:
- Resident and ordinarily resident (ROR).
- Resident but not ordinarily resident (RNOR).
- Non-resident in India (NR).
Under Indian tax laws, the scope of taxation differs as per the residential status of an individual:
- RORs are subject to tax in India on their worldwide income, wherever received.
- RNORs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India, or is from a business controlled in or a profession set up in India.
- NRs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise, or is received or deemed to be received in India.
RNOR and NR individuals are not subject to tax in respect to their income earned and received outside of India.
Personal income tax rates
The slab rates applicable to individuals for the tax year 2017/18 are as follows:
|Taxable income (INR)
||Tax on column 1 (INR)
||Percentage on excess (%)
The basic exemption limit for resident individuals who are 60 years of age or more but less than 80 years of age at any time during the tax year is INR 300,000, and for resident individuals who are 80 years of age or more it is INR 500,000.
In addition to the income tax, a surcharge (SC) of 10% is to be levied where the total income of individuals exceeds INR 5 million but does not exceed INR 10 million. Where the total income of individuals exceeds INR 10 million, the rate of SC will be 15%.
An education cess (EC) at the rate of 2% and a secondary higher education cess (SHEC) at the rate of 1% of the income tax and surcharge (if applicable) will be levied to compute the final tax liability of individuals.
Maximum marginal tax rate
Based on above, the maximum marginal tax rate for individuals with an income of up to INR 5 million is 30.9% and 33.99% and 35.54% for those with a total income of above INR 5 million, but not more than INR 10 million and more than INR 10 million, respectively.
Resident individuals are eligible for a tax rebate of the lower of the income tax or INR 2,500 where the total income does not exceed INR 350,000.
Alternative minimum tax (AMT)
AMT is applicable to all persons other than a company having income from a business or profession. AMT is an amount of tax that is computed on the adjusted total income. The taxpayer is liable to pay tax on such income at a rate of 18.5% (plus SC, EC, and SHEC) on the adjusted total income.
Local taxes on income
Profession taxes imposed by certain states on individuals are minimal and are first added to the total income and then deductible while calculating taxable income.