India

Taxable period

The Indian tax year is from 1 April to 31 March.

Tax returns

An individual is required to file a separate return of income. Joint filing is not permitted. Husband and wife are treated as separate and independent individuals for the purposes of Indian income tax.

An individual engaged in a business or profession is required to have the books of account audited under the tax laws if the turnover/total sales/gross receipts exceeds INR 10 million in the case of a business or where the gross receipts exceed INR 5 million in the case of a profession.

The due date for individuals to file their tax returns is 31 July of the year immediately following the relevant tax year. In cases where the individual is required to have one's books of account audited under the tax laws, the due date is 31 October of the immediately following the relevant tax year. However, a belated/revised return can also be filed by 31 December, after close of the relevant tax year. 

In cases where tax returns are filed after the due date, a late fee of INR 5,000 will be levied. However, in case taxable income does not exceed INR 500,000, this fee will not exceed INR 1,000.

Individuals who are 80 years old or more and qualify as RORs of India have an option to file their tax returns manually. It is mandatory to file the return electronically if:

• there is a claim of refund
• the total income exceeds INR 500,000, or
• where the individual qualifies as an ROR and possesses foreign assets or has the signing authority for any of one's accounts located outside India.

To e-file the return, taxpayers have been using digital signatures for paperless filing, or could opt to forward the details of the e-filed return to the Central Processing Centre. Now, the government has announced a paperless way of e-filing of tax returns via Electronic Verification Code (EVC). The EVC is a 10-digit alpha-numeric code that is unique for each Permanent Account Number (PAN) and is generated for the purpose of electronic verification of the person in the e-filing website.

Mandatory furnishing of return of income

It is mandatory to file a return of income in the following cases:

• An individual qualifying as an ROR and owning foreign assets (as a beneficial owner or otherwise) or having signing authority in any account located outside India. 
• A person deposits amounts more than INR 10 million in one or more current accounts maintained with banks or co-operative banks.
• A person incurs expenditure exceeding INR 200,000 for oneself/any other person for travel to a foreign country.
• A person incurs expenditure exceeding INR 100,000 towards consumption of electricity.
• A person who fulfils such other conditions as may be prescribed.

Resident senior citizens (aged 75 years or more) having only pension and bank interest income from the specified bank are exempted from the return filing requirement, subject to fulfilment of certain conditions.

Payment of tax

Final income tax payment will be made on or before the due date of filing of the income-tax return.

Further, if the taxpayer’s estimated tax liability (for the current tax year) after reducing withholding tax/foreign tax credit is likely to exceed INR 10,000, then the taxpayer must pay advance tax during the tax year on the basis of estimated income in four instalments: by 15 June (15% of the estimated annual tax liability), by 15 September (45% of the estimated annual tax liability), by 15 December (75% of the estimated annual tax liability), and by 15 March of the tax year (100% of the estimated annual tax liability). Resident senior citizens are exempted from the requirement of advance tax payments unless they have income from a business or profession.

Withholding tax

An individual may not be required to withhold tax from payments he/she makes. However, in certain cases, an individual (engaged in business or profession) is required to withhold tax if he/ she is liable for audit under the tax law in the tax year immediately preceding the tax year in which the payment is made. In case of many other payments, the tax laws require a payer to withhold tax from the payment and deposit the same into the Indian Government Treasury within specified timelines. Such payers are also required to obtain a Tax Deduction Account Number (TAN) once, and file periodic returns of tax withheld. 

Similarly, where the individual is making payment of rent to a resident in excess of INR 50,000 per month, he/she is liable to withhold tax on such payment at the rate of 5% in the last month of the tax year or last month of tenancy, whichever is earlier. With effect from 1 October 2024, such rate would be reduced to 2%.

Any transfer of immovable property (any land, building, or part of a building) to a resident will attract a withholding tax of 1% of the agreed consideration or stamp duty value (whichever is higher) if the consideration and stamp duty value or value for a transfer is INR 5 million or more. This consideration includes all charges of the nature of club membership fee, car parking fee, electricity and water facility fee, maintenance fee, advance fee, or any charge of similar nature that are incidental to transfer of the immovable property. The withholding tax provisions will not apply in cases of transfer of agricultural land.

An employer is required to withhold tax from salaries at the time of payment of salary and deposit the same into the Government Treasury by the seventh day of the month following the month in which tax is withheld, except for the month of March, when the tax can be deposited on or before 30 April. An employer will obtain evidence from the employees in the prescribed form and manner. This is aimed to curb the practices followed by companies of allowing deductions/exemptions on the basis of mere declaration by the employees.

Currently, the employer is not allowed to consider the tax collected at source (TCS) as a credit for calculating tax due on the salary income. This has resulted in cash flow issues to the employees. With effect from 1 October 2024, the employer will also consider TCS while computing the net tax due on salary income.

Also, currently, there is no specific provision that allows the parent of a minor to avail the TCS collected in the name of a minor. With effect from 1 January 2025, the parent of a minor, in whose tax return the minor's income is included, will be allowed to avail oneself of the credit for the TCS deducted in the minor's name.

Interest at 1% per month or part of the month is levied on the employer in case of a delay in deduction. Interest at 1.5% per month or part of the month is levied in case there is a delay in deposition of the taxes so deducted.

Black Money Taxation Act

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Black Money Taxation Act) covers all persons who were ROR in India, in accordance with provision of the Income-tax Act, either in the tax year to which the income relates or in the tax year in which the undisclosed asset located outside India was acquired. Any undisclosed foreign income or assets detected are to be taxed at the rate of 30% under the Black Money Taxation Act. Non-disclosure or inaccurate disclosure will attract a penalty of INR 1 million and may attract imprisonment of up to seven years. In addition, there is a provision for penalty of 300% of tax and imprisonment of up to ten years in case of wilful attempt to evade taxes on foreign income/assets.

With effect from 1 October 2024, a penalty will not be levied where an individual omits reporting assets (other than immovable property) valued at INR 2 million or less.

Restriction on cash transactions

No person will receive an amount of INR 200,000 or more in (i) aggregate from a person in a day, (ii) respect of a single transaction, or (iii) respect of transactions relating to one event or occasion from a person. A person will have to transact for amounts above the prescribed limit by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. The provision will not apply in case of:

• Any receipt by the government, any banking company, post office savings bank, or cooperative bank.
• Any other persons or class of persons or receipts that may be notified by the Central Government.

A penalty will be levied on a person who receives a sum in contravention of provisions, and the penalty will be equal to the amount of such receipt. However, the penalty will not be levied if the person proves that there were good and sufficient reasons for such contravention.

In order to further discourage cash transactions and move towards less cash economy, a new provision was inserted attracting a 2% tax deducted at source on cash payments in excess of INR 10 million in aggregate made during the year by a banking company or cooperative bank or post office to any person from an account maintained by the recipient. Effective 1 July 2020, in case a person who has not filed the return of income for three tax years immediately preceding the relevant tax year in which the withdrawals are made and for which the due date for filing the tax return has expired, tax will be deducted at 2% on withdrawals exceeding INR 2 million or 5% if such withdrawals exceed INR 10 million.

Tax audit process

Audit for income-tax purposes

Persons carrying on business are required to get their books of account audited for income-tax purposes if the business turnover exceeds INR 10 million. For individuals opting for the presumptive taxation scheme, one will not be required to get one’s accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed INR 20 million. This has been effective from tax year 2017/18 onwards. For persons carrying on a profession, crossing the turnover threshold of INR 5 million will attract the requirement to have its books of accounts audited from 1 April 2017. The penalty for non-compliance with this audit requirement is INR 150,000, subject to 0.5% of total turnover/gross receipts.

Special audit

Tax authorities, at any stage of proceedings, having regard to the nature, complexity, and volume of accounts or doubts on correctness of accounts or other reasons, may, after taking necessary approval of the Chief Commissioner, direct a taxpayer to get its accounts audited and to furnish the report.

Statute of limitations

The statute of limitations under the Income-tax Act for submission of tax returns (other than amended or updated tax returns) is nine months from the end of the relevant tax year, and for assessment of returns filed is 12 months (time limit to be increased by another 12 months in case transfer pricing provisions are applicable) from the end of the relevant tax year for which the return is filed. The statute of limitations for reassessment ranges from four to eleven years from the end of the relevant tax year.

Topics of focus for tax authorities

Faceless assessment

With a view to roll out e-assessment across the country so as to impart greater transparency and accountability, the Central Government was empowered to notify a scheme for scrutiny assessments to achieve the desired purpose. The scope of e-assessment has been extended to include best judgement assessment and reassessment as well. Similar e-proceedings have been introduced in respect of:

• Proceedings before Commissioner (Appeals).
• Imposition of penalty under the Income-tax Act.

General Anti Avoidance Rule (GAAR)

GAAR provisions were introduced by the Finance Act, 2017 and have been applicable since 1 April 2017. These provisions empower the tax department to declare an ‘arrangement’, or any part or step thereof, entered into by a taxpayer with the main purpose of obtaining tax benefit to be an 'Impermissible Avoidance Agreement' (IAA), the consequence of which would be denial of tax benefit under the Income-tax Act or under the applicable tax treaty.

For GAAR provisions, an IAA means the main purpose of which is to obtain a tax benefit, and it:

• creates rights and obligations not at arm’s length
• results in abuse/misuse of provisions of this Act (directly/indirectly)
• lacks/is deemed to lack commercial substance, or
• is carried out in a manner that is not ordinarily employed for bona fide purposes.

The following are consequences if an arrangement is regarded as an IAA:

• Disregard/re-characterise the arrangement.
• Disregard corporate structure.
• Deny tax treaty benefit.
• Reassign place of residence/situs of assets or transactions.
• Reallocate income, expenses, relief, etc.
• Re-characterise equity-debt, income-expense, relief, etc.