Trade ChakraIndia Trade ChakraIndia Business Trade Chakra
Trade Chakra

The article provides information on the Income tax in India, the different categories to classify income and the income tax slab in the 2008 budget.

Income Tax In India

Income tax in India is levied by the Central government and is monitored and controlled by Central Board OF Direct Taxes under Ministry of Finance in allay with the provisions of the Income Tax Act. Income earned in a given financial year is subject to tax as per the rates prescribed for that year. A financial calendar is from April 1 to March 31 of the following year. India has adopted the residential form of tax system. It means tax payers will be divided into residents or non residents. A tax payer can also be classified as ordinary residents.

Residential Status
An individual is resident in India if he is in India in the tax year for:
  • 182 days or more; or
  • 60 days or more (the period of 60 days stands changed to 182 days or more for Indian citizens or persons of Indian origins on a visit to India; and also for citizens of India who leave India for employment abroad as member of a crew of an Indian ship) during the tax year, and an aggregate of 365 days or more during the four years preceding the tax year.
  • An individual who does not satisfy the above conditions is a non-resident.
A resident is "not ordinarily resident" in India in any tax year if he:
  • Has been "non-resident" in India in nine out of the 10 previous years preceding that year: or
  • Has during the previous seven years, preceding that year, been in India for a total period of 729 days or less.
  • Taxability based on status
Taxability Based On Status

Residential Status Indian Sourced Income Foreign Sourced Income
Resident Taxable In India Taxable In India
Resident but not ordinarily resident Taxable In India Not Taxable In India
Non resident Taxable In India Not Taxable In India

Heads Of Income
Income can be divided into five categories. The income that falls within the tax component is disclosed in line with rules for a particular head and then cumulated to determine the aggregate income to be taxed. But losses under certain categories cannot be cumulated with income gained under other categories.

Salaries: It covers those monetary gains that are obtained for services performed and would include wages, pension, fees and commission .Standard deduction is taken from the salary and the amount of deduction depends upon the income received.

Income From House property: It involves income earned by renting residential and commercial property. Only two authorized deductions are allowed while calculating income.

Profits And Gains From Business Or Profession: It covers monetary benefits gained from business or profession minus the permissible deductions, against the revenue earned.

Capital Gains: It deals with gains due to transfer of assets. The duration of holding determines the classification of the asset, which then decides the method of taxation. Capital assets held for 36 months (12 months in case of shares/securities) are taken as short term assets, while all other capital assets are taken as long term capital assets. Long term assets have the advantage of lower rate of tax.

Income From Other Sources: It is the remaining category of income and takes care of all income not covered by any category.

Foreign Nationals
The tax law in India allows for exemption of income earned by foreign nationals for services provided in India, under certain condition:
  • Remuneration from a foreign enterprise not conducting any business in India, provided the individual's stay in India does not exceed 90 days and the payment made is not deducted in computing the income of the employer;
  • Remuneration received by a person employed on a foreign ship provided his stay in India does not exceed 90 days;
  • Remuneration of foreign diplomats, consular staff, trade officials and their staff and family; and
  • Income of an employee or consultant of a government approved foreign charitable institutions.
  • Payment from an International unit not having any business in India on condition that the individual does not reside in India for more than 90 days and the remuneration made is not subtracted in calculating the income of the employer.
  • Payment obtained by a person working on an International ship under condition he does not reside in India for more than 9 days.
  • Payment for foreign diplomats, consular staff, trade officials and their staff and family and
  • Earnings of an employee or consultant of a government approved foreign charitable institutions.
India Budget 2008

Personal Taxation

Basic Tax Rates

Income (INR) Tax Rate
Up to 150,0000 Nil
150,001-300,000 10%
300,001-500,000 20%
Above 30%

*Basic exemption for women and senior citizens will be INR 180,000 and INR 225,000 respectively.

Recent Additions