Tax in India

Who is the tax authority in India?

The Income Tax Department (ITD), under the Central Board of Direct Taxes (CBDT) and the Department of Revenue in the Ministry of Finance, is the federal direct-tax authority of India. It administers the Income-tax Act, 1961 and a number of allied statutes (Wealth Tax — repealed in 2015 — Black Money Act 2015, Benami Transactions Act 1988). Indirect tax is administered by the Central Board of Indirect Taxes and Customs (CBIC) for central GST and customs, and by state-level Commercial Taxes / GST departments for state GST. The Goods and Services Tax Network (GSTN) is the technology backbone for the unified GST regime. The taxpayer-facing portals are incometax.gov.in for direct tax and gst.gov.in for GST. Chartered Accountants regulated by the Institute of Chartered Accountants of India (ICAI) under the Chartered Accountants Act 1949 are the principal credentialed tax practitioners in India [SC1][SC2].

What is the Indian tax year and the filing deadline?

India operates on the Previous Year / Assessment Year structure. The Previous Year (PY) for individuals runs 1 April to 31 March; the Assessment Year (AY) is the following 12 months in which the PY's income is assessed. So PY 2025-26 (income earned 1 April 2025 – 31 March 2026) is assessed in AY 2026-27. Individual returns (ITR-1 through ITR-7 depending on the filer category) are due 31 July of the AY for filers not requiring tax audit; 31 October for filers requiring tax audit under section 44AB; and 30 November where the filer has international or specified domestic transactions requiring a Transfer Pricing report under section 92E [SC1]. Belated returns under section 139(4) can be filed up to 31 December of the AY with a late-filing fee under section 234F. Advance tax is paid in four instalments — 15 June (15 percent), 15 September (45 percent cumulative), 15 December (75 percent cumulative), and 15 March (100 percent) — for filers whose tax liability after TDS exceeds INR 10,000.

How is Indian tax residency determined?

Residency under section 6 of the Income-tax Act has three categories: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). The basic residency test for an individual is: physical presence in India for 182 days or more during the PY; OR 60 days or more in the PY plus 365 days or more across the four preceding PYs [SC8]. The 60-day threshold is replaced by 182 days for Indian citizens leaving India for employment abroad and for Indian citizens or persons of Indian origin visiting India whose total Indian-source income (excluding foreign-source income) does not exceed INR 15 lakh — at INR 15 lakh and above, the threshold is 120 days, with a deemed-RNOR consequence rather than ROR.

The Finance Act 2020 added a deemed-residence rule under section 6(1A): an Indian citizen with total income (other than from foreign sources) above INR 15 lakh who is not liable to tax in any other jurisdiction by reason of domicile, residence, or any similar criterion, is deemed to be a resident of India [SC8]. RNORs are taxed on Indian-source income plus foreign-source income from a business controlled in or profession set up in India; RORs are taxed on worldwide income; NRs are taxed only on Indian-source income. Treaty residency tie-breakers under India's bilateral DTAs apply where two jurisdictions both treat a person as resident.

How does Indian personal income tax work?

India operates a dual regime: the new tax regime under section 115BAC (the default since FY 2023-24) and the old tax regime (still available by election). New-regime slabs for FY 2025-26 are 0 percent up to INR 4 lakh, 5 percent up to INR 8 lakh, 10 percent up to INR 12 lakh, 15 percent up to INR 16 lakh, 20 percent up to INR 20 lakh, 25 percent up to INR 24 lakh, and 30 percent above INR 24 lakh, following the Budget 2025 expansion of the slab structure [SC4]. A tax rebate under section 87A makes income up to INR 12 lakh effectively tax-free under the new regime. Old-regime slabs (election required, deductions available) are 0 / 5 / 20 / 30 percent at lower thresholds with available deductions including section 80C (up to INR 1.5 lakh), 80D, HRA, LTA, and home-loan interest under section 24.

A surcharge applies on top of base tax at 10 percent (income > INR 50 lakh), 15 percent (> INR 1 crore), 25 percent (> INR 2 crore), and 37 percent under the old regime (> INR 5 crore); the 37 percent slab is capped at 25 percent under the new regime. A 4 percent Health and Education Cess applies on tax-plus-surcharge for all filers [SC4]. Long-term capital gains on listed equity above INR 1.25 lakh per year are taxed at 12.5 percent under section 112A (post-Budget 2024 rate); short-term capital gains on listed equity at 20 percent under section 111A. Other long-term gains are at 12.5 percent post-Budget 2024 (without indexation for most assets, with limited grandfathering).

How does Indian corporate tax work?

Domestic companies have three regimes: the legacy 25 percent rate for companies with turnover up to INR 400 crore in the prior PY (otherwise 30 percent), the section 115BAA optional 22 percent rate (without specified deductions and exemptions), and the section 115BAB 15 percent rate for new manufacturing companies incorporated after 1 October 2019 and commencing production by 31 March 2024 [SC4]. A 10 percent surcharge applies on the 22 percent and 15 percent regimes; surcharge structures vary on the legacy regime. The 4 percent Health and Education Cess applies on tax-plus-surcharge across all regimes. Foreign companies are taxed at 35 percent on Indian-source income (post-Budget 2024 reduction from 40 percent), with the same cess and surcharge structure. Minimum Alternate Tax (MAT) under section 115JB applies at 15 percent of book profits to companies in the legacy regime; 115BAA and 115BAB elections are MAT-exempt. India implemented the OECD Pillar Two Global Anti-Base Erosion (GloBE) framework with the Domestic Minimum Top-up Tax in Budget 2025 — practitioners should check the operative effective date for the 2025-26 PY [SC5].

How does indirect tax work in India?

India's principal indirect tax is the Goods and Services Tax (GST), in force since 1 July 2017. GST replaced a fragmented set of central and state indirect taxes (central excise, service tax, VAT, entry tax, octroi). The structure is dual: Central GST (CGST) and State GST (SGST) — or Union Territory GST (UTGST) — apply on intra-state supplies; Integrated GST (IGST) applies on inter-state supplies and imports. Standard rates are 0 percent, 5 percent, 12 percent, 18 percent, and 28 percent, with a Compensation Cess on luxury and demerit goods (tobacco, automobiles, aerated drinks) [SC4]. The mandatory GST registration threshold for goods is INR 40 lakh of aggregate turnover (INR 20 lakh in special-category states); for services it is INR 20 lakh (INR 10 lakh in special-category states). Composition Scheme is available for small suppliers up to INR 1.5 crore turnover at fixed concessional rates. E-invoicing for B2B transactions is mandatory for taxpayers with aggregate turnover above INR 5 crore. Customs duty on imports operates separately under the Customs Act 1962.

How is crypto taxed in India?

The Finance Act 2022 introduced a specific Virtual Digital Asset (VDA) regime in the Income-tax Act, with definitions in section 2(47A) covering cryptocurrency, NFTs, and notified digital assets. Income from the transfer of any VDA is taxed at a flat 30 percent under section 115BBH, plus surcharge and 4 percent cess; no deductions are permitted other than the cost of acquisition; losses from VDA transfer cannot be set off against any other income or carried forward [SC5]. A 1 percent Tax Deducted at Source (TDS) applies on the consideration paid for the transfer of any VDA above prescribed thresholds, under section 194S, with a INR 50,000 per year threshold for specified persons and INR 10,000 for others. Receipt of a VDA without consideration (gift) is taxable under section 56(2)(x). The TDS regime applies to both Indian and foreign exchanges where the buyer is an Indian resident; non-resident exchanges with Indian users have been the subject of compliance notices from CBDT. Mining and staking treatment is being clarified through CBDT FAQs.

How does India handle tax treaties?

India maintains a network of approximately 95 comprehensive Double Taxation Avoidance Agreements (DTAAs), one of the larger networks in Asia [SC5]. Most Indian DTAAs follow the UN Model Tax Convention with India-specific reservations, particularly on source-country taxation rights and the inclusion of Limitation on Benefits (LOB) clauses. India signed the OECD Multilateral Instrument; the MLI's modifications, including the Principal Purpose Test, apply to many of India's covered DTAAs for periods from 2020 onward. India has a robust transfer-pricing regime under sections 92 to 92F, with safe-harbour rules, Advance Pricing Agreements (APAs), and Mutual Agreement Procedure (MAP) mechanisms. The Equalisation Levy on certain digital services (6 percent on online advertising; the 2 percent levy on e-commerce supply was abolished from 1 August 2024) operated alongside the DTAA framework as a unilateral measure pending OECD Pillar One implementation.

What are the common penalties and pitfalls for foreigners?

Late filing of an income-tax return carries a fee under section 234F of INR 5,000 (INR 1,000 for filers with income up to INR 5 lakh) [SC1]. Interest under section 234A applies at 1 percent per month for late filing; 234B at 1 percent per month for shortfall in advance tax; 234C at varying rates for deferment of advance-tax instalments. Penalty under section 270A for under-reporting of income is 50 percent of tax payable on under-reported income; for misreporting (deliberate misstatement) it is 200 percent. Specific penalties for Black Money Act 2015 violations on undisclosed foreign assets and income are severe, including a 10-year imprisonment exposure and 120 percent tax on undisclosed foreign income.

Common pitfalls for non-resident filers and Indians abroad include: missing the deemed-RNOR or deemed-residence rules under section 6(1A) when total Indian income exceeds INR 15 lakh; failing to disclose foreign assets in Schedule FA for ROR filers; assuming the DTAA tie-breaker exempts Indian-source income when source-country taxation is preserved; and the lock-in nature of the new-regime election for salaried filers vs business filers. For complex cross-border or VDA scenarios, common approaches discussed by practitioners include consulting a credentialed Chartered Accountant familiar with the relevant DTAA before claiming treaty relief.