Your Stay in India Decides Whether You Are Subject to Tax
Individuals in India, earning an income are commonly subjected to tax. Technically, if you are an Indian citizen earning an income, local or global, you have to pay tax. Even if you are residing outside of India, you are required to pay tax. But if you are a foreign national and stayed long enough in India, you could be paying tax as well. Hence, it is time to clear the fuzz about personal income tax in India.
When we say residential status, it means how long you have stayed in India. For some countries, they are particular about your affairs in their country. For India, if you have stayed for more than 182 days, you are considered a resident taxpayer. It does not matter if you reside for leisure or business affairs. As long as you hit the mark of 183 days in India, you are to pay tax. All the more if you are earning an income here. There is a term for those who belong to this category, and they are called Resident but Not Ordinarily Resident (RNOR). If you are an Indian citizen, by the tax law, you are called Resident and Ordinarily Resident (ROR). If you are a foreigner and have only stayed in the country for less than 182 days, you are a Non-Resident (NR).
The Taxable Income
Currently, India practices three taxable income brackets. It applies to an individual for the financial year of 2020/2021. The following income bracket is in Indian Rupees (INR):
- Income from 0 to 250,000: Not taxable.
- Income from 250,001 to 500,000: five per cent tax
- Income between 500,000 to 1,000,000: twenty per cent tax
- Income over 1,000,000 : thirty per cent tax
- Individual aged 60 years old but less than 80 years old are exempted from the tax should their income is up to INR300,000. Resident individuals who are 80 years old and more, their exemption limit is INR500,000.
Under the three taxable income brackets, an individual can claim for specific tax exemptions such as leave travel allowance, house rent allowance, exemption of free food provided by employers, the standard deduction for professional tax and many more.
Recently though, under India’s Union Budget, there is a new individual income tax regime in place. It coincides with the current tax regime. The features of the latest income tax system are that it has a lower tax rate across six levels of income. The following demonstrates how the new individual tax regime takes place:
|Income bracket (INR)||Tax Rate (%)|
|0 to 250,000||0|
|250,001 to 500,000||5|
|500,001 to 750,000||10|
|750,001 to 1,000,000||15|
|1,000,001 to 1,250,000||20|
|1,250.001 to 1,500,000||25|
|More than 1,500,000||30|
Unfortunately, if the individual taxpayer in India chooses to pay tax based on the new individual income tax regime, they would have to forgo the current specific tax exemptions altogether.
Additional Tax and Rebates
If an individual total income in India exceeds INR 5 million, there is a further surcharge percentage of the total revenue that taxpayers need to pay up.
- Total income of up to 5 million is not levied any surcharge.
- Total revenue between 5 million and 10 million has a levy of ten per cent surcharge
- Total revenue between 10 million and 20 million has a levy of fifteen per cent surcharge
- Total income between 20 million and 50 million has a levy of twenty-five per cent surcharge
- Total revenue of over 50 million has a levy of thirty-seven per cent surcharge.
For every individual taxpayer, there is a health and education cess of four per cent of the income tax that will be collected to each individual effective tax rate. Personal income tax in India also has rebates. A resident can qualify for a tax rebate if they belong to the lower-income bracket. The discount amounts to INR 12,500, where the total income is below INR 500,000.
As most countries deploy tax regime, India’s tax regime is pretty impressive. Individual income tax in India makes you rethink how effective the practice is that it covers extensive income levels to all of its citizens, including the converted resident and non-residents.