Income tax is a tax levied on the taxable income of a person as per rates provided in the Income-tax Act and needs to be paid directly to the government. The Indian Income-tax Act, 1961 along with Indian Income-tax Rules, 1962 provides various guidelines for the determination of income, tax computation, tax rates, compliance, and other provisions. It is very important for any individual or corporate to abide by the various provisions of the act and rules for doing business in India. The Central Board of Direct Taxes (CBDT) administers the Income Tax Department, which is a part of the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is a key source of funds that the government requires to fund its various activities and schemes to serve the public.
Residential Status: Determination of the residential status of a tax-payer individual or company is very essential as it is one of important factor to determine a person’s taxability of income in India. Residential status is classified in the following Categories:
Read more about residential status and taxability here
Heads of Income: Under the Income-tax Act, income is divided under the following heads:
| Income from Salary | Salary, Allowances, Leave encashment etc received as part of employment by any individual |
| Income from House Property | Income from house or building, this may be owned and self-occupied or may be rented |
| Income from Business or Profession | Income/loss that arises as a result of carrying on a business or profession |
| Income from Capital Gain | Income from gain or loss on sell/transfer of any capital assets including land, building, securities etc. |
| Income from Other Sources | This is the residual head - includes income from interest, pension, gifts received etc |
Tax Rates: Tax rates in India are subject to change time to time and generally annually assessed at the time of presentation of union budget and decided for April to March period. Broad tax rates for different taxable persons are below:
| Type of taxable persons | Broad Tax rate |
| For Individual, HUF | As per slab rate, i.e. zero to 30% |
| For firms, Limited liability partnerships (LLPs) | Flat 30% |
| For Companies | Flat tax rate ranging from 22% to 40% for different companies. Special tax rate of 15% for new manufacturing companies |
The aforementioned tax rates are further subject to an applicable surcharge and cess on the tax amount.
Refer to article on the tax rate in India to know more
Major compliance requirements: The Indian income tax act provides for various compliance for companies, which primarily includes the followings:
Read more about various compliances under the income tax act here
Tax Audit under Income Tax Act: If the gross receipts or turnover of an assessee exceeds the threshold as provided under the Act, then it has to get its accounts audited by a chartered accountant in practice and submit an audit report to the tax department. At present, the threshold for Tax Audit is as provided below:
Transfer Pricing: Similar to the OECD Guidelines and Transfer Pricing Regulations of different countries, Indian Transfer Pricing Regulations also prescribe methods to compute ‘Arm’s Length Price (ALP)’ for an ‘International Transaction’ or a ‘Specified Domestic Transaction’ entered into by a taxpayer with its ‘Associated Enterprise’. Indian transfer pricing regulations have prescribed the following five methods for the determination of ALP —
Double Taxation Avoidance Agreement (DTAA): India has entered into Double Taxation Avoidance Agreements (DTAAs) with various countries with the objective of evolving a system for the respective countries to allocate the right to tax different types of income on an equitable basis and to avoid double taxation of the same income in different countries. As per the provisions of DTAAs, a non-resident is able to get the benefit of a lesser tax rate in India or get tax credit benefit in their home country for tax paid in India. An assessee may choose between provision of Indian Income tax act or provisions in DTAAs, whichever is more beneficial to him. Further, in order to avail the benefits of DTAAs primarily following documents are required:
At CompaniesNext we aim to provide the one-stop solution for high-quality services. Our direct tax team is specialized in domestic and international tax matters, has worked with leading consulting organizations, and has served many medium to large corporates in India and outside. Our Income tax compliance services include:
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