India

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

Alternate personal tax regime (APTR)

Effective 1 April 2024, i.e. tax year 2025/26, the tax rates under the ATPR, devoid of any deductions or exemptions, have been revised as follows:

Under the APTR, the taxpayer is not eligible to claim certain exemptions/deductions/set-off of losses/carryforward of losses, such as:

• Leave travel allowance.
• House rent allowance.
• Allowance under which incomes that do not form part of the total income of the Income-tax Act, except certain prescribed allowances.
• Exemption of free food and beverages through vouchers provided by the employer.
• Deduction for professional tax.
• Deduction of interest payment on housing loans for self-occupied property and restrictions on set-off of loss from let out property.
• All Chapter VIA deductions of the Income-tax Act available for expenditure by way of employee’s contribution to provident fund, children tuition fees, insurance premium, donations, medical premium, etc., except employer’s contribution to notified pension scheme, such as National Pension Scheme.

Note that this is not an exhaustive list and just an overview of certain deduction/exemptions that are not allowed in the APTR.

The APTR option can be exercised for every financial year (FY) if the taxpayer has no business income. If the taxpayer has business income, the option, once exercised, will be mandatory for all subsequent financial years as well, with only a one-time change being permitted later.

The Revenue Department has clarified that the employer will seek information from each of its employees having salary income regarding their intended tax regime, and each such employee will intimate the same to the employer. Upon intimation, the employer will compute the total income and deduct tax at source thereon according to the option exercised.

If intimation is not made by the employee, it will be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the alternate tax regime.

It is also clarified that the employee can elect to change the option of the tax regime at the time of filing one's India tax return.

Old tax regime

The slab rates applicable to individuals for tax year 2022/23 are as follows:

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. For resident individuals who are 80 years of age or more, it is INR 500,000.

Surcharge

In addition to the income tax, a surcharge is to be levied where the total income of individuals exceeds INR 5 million, as follows:

However, on income arising on account of long-term capital gains, the rate of surcharge would be capped at 15%.

Health and education cess

Health and education cess at the rate of 4% of the income tax and surcharge (if applicable) will be levied to compute the effective tax rate of individuals.

Tax rebate

Resident individuals are eligible for a tax rebate of the lower of the income tax or INR 12,500 where the total income does not exceed INR 500,000. However, in case the alternate tax regime is exercised, tax rebate would be the lower of the income tax or INR 25,000 where the total income does not exceed INR 700,000.

COVID-19 reliefs

• Any payment received from employer and/or any other person for medical treatment of COVID-19 during FY 2019/20 and subsequent years is fully exempt in the hands of the recipient individual.
• Any ex-gratia payment made by the employer to the family members of an employee who died on account of COVID-19 during FY 2019/20 and subsequent years is fully exempt from tax in the hands of the recipient family members without any limit. However, the tax exemption shall be limited to INR 1 million in aggregate where such amount is received from any other persons.

Alternative minimum tax (AMT)

AMT is applicable to all persons, other than a company, having income from a business or profession. AMT means 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 surcharge and health and education cess) on the adjusted total income. For a person located in an international financial services centre deriving income solely in convertible foreign exchange, one shall be liable to pay tax on such income at the rate of 9% (plus surcharge and health and education cess). AMT paid in a year is eligible to be carried forward for set-off against normal tax liability for 15 years. In case of an individual, Hindu undivided family (HUF), an association of persons, a body of individuals, or an artificial juridical person, AMT is not applicable where the adjusted total income does not exceed INR 2 million.

Local taxes on income

Profession taxes imposed by certain states on individuals are minimal and deductible while calculating taxable income.