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 FY 2020/21 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.
New personal tax regime (NPTR)
Effective 1 April 2020, an optional NPTR, devoid of any deductions or exemptions, has been introduced with lower tax rates spread across six income levels as provided below:
However, if the NPTR is not opted, the existing income-tax rates shall apply.
Under the NPTR, 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 section 10(14) of the Income-tax Act, except certain prescribed allowances.
- Exemption of free food and beverages through vouchers provided by the employer.
- Standard deduction of INR 50,000 and 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 (NPS).
The NPTR option can be exercised for every financial year if the taxpayer has no business income. If the taxpayer has business income, the option, once exercised, shall be mandatory for all subsequent financial years as well, with only a one-time change being permitted later.
In addition to the income-tax, a surcharge is to be levied where the total income of individuals exceeds INR 5 million, as follows:
|Up to 5 million||0|
|Above 5 million but up to 10 million||10|
|Above 10 million but up to 20 million||15|
|Above 20 million but up to 50 million||25|
|Above 50 million||37|
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.
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.
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, 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 are first added to the total income and then deductible while calculating taxable income.