Tax in India 2024

Learn about the tax structure in India, including income tax, GST, and other direct and indirect taxes. Stay updated with the latest tax regulations.

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Types of Taxes in India

India’s taxation system can be broadly categorized into two main types:

  1. Direct Taxes: These are taxes directly levied on individuals and organizations based on their income or wealth.
  2. Indirect Taxes: These are taxes imposed on goods and services, collected by intermediaries from consumers, and later submitted to the government.

Direct Taxes

Income Tax:

This is the most common form of direct tax and is levied on the income of individuals and entities (corporates, firms, etc.).

  • Slab-based system: Individual taxpayers fall under different income slabs, with each slab having a specific tax rate. Higher-income earners pay higher taxes.
  • Corporate Tax: Companies in India are required to pay tax on their profits. As of FY 2023-24, the corporate tax rate for domestic companies is 22%, with certain reductions available for new manufacturing companies (15%).

Wealth Tax (abolished in 2016):

Previously levied on the net wealth of individuals, Hindu Undivided Families (HUFs), and companies, wealth tax was abolished and replaced with an additional surcharge on high-income earners.

Capital Gains Tax:

This tax is applicable on the profits made from the sale of capital assets such as stocks, property, or bonds.

  • Short-Term Capital Gains: Taxed at 15% for equity investments held for less than a year.
  • Long-Term Capital Gains: Exempt up to ₹1 lakh annually for equity investments; beyond that, taxed at 10%.

Indirect Taxes

Goods and Services Tax (GST):

GST is a unified indirect tax that replaced multiple state and central taxes like VAT, service tax, and excise duty in 2017.

  • Tax Slabs: GST operates under different slabs of 0%, 5%, 12%, 18%, and 28%, depending on the type of goods or services.
  • CGST, SGST, and IGST: For intra-state sales, both Central GST (CGST) and State GST (SGST) are levied. For inter-state sales, Integrated GST (IGST) is applicable.

Customs Duty:

Levied on goods imported into India, customs duty varies depending on the type of goods and their value.

Excise Duty:

Although largely replaced by GST, excise duty is still levied on some products like petroleum and alcohol.

Other Significant Taxes

Professional Tax:

Levied by certain state governments on salaried employees and professionals like lawyers, doctors, and accountants. The maximum professional tax charged per annum is ₹2,500.

Stamp Duty and Property Taxes:

When transferring property ownership, buyers are liable to pay stamp duty to the state government. Additionally, property tax is levied on real estate based on its value.

Dividend Distribution Tax (DDT) (abolished in 2020):

Previously levied on dividends distributed by companies to shareholders, DDT was abolished in favor of taxing dividends in the hands of recipients.

Taxation for Individuals

The Indian Income Tax system follows a progressive taxation model, meaning higher income levels are taxed at higher rates.

Income Tax Slabs (FY 2023-24):

  • Up to ₹2.5 lakh: Nil
  • ₹2.5 lakh – ₹5 lakh: 5%
  • ₹5 lakh – ₹10 lakh: 20%
  • Above ₹10 lakh: 30%

Tax Filing and Compliance

  • Tax Deducted at Source (TDS): Employers and other entities are required to deduct tax at the source of income (like salary, rent, or interest) and deposit it with the government.
  • Filing Income Tax Returns (ITR): Individuals and businesses must file their tax returns annually, with deadlines generally falling on July 31 for individuals and September 30 for businesses.

Tax Benefits and Deductions

  • Section 80C: Allows a deduction of up to ₹1.5 lakh annually on investments made in specified instruments such as Public Provident Fund (PPF), Life Insurance premiums, and Equity Linked Savings Schemes (ELSS).
  • Section 80D: Allows deduction for health insurance premiums.

  • Section 24 (Home Loan Interest): A deduction of up to ₹2 lakh is allowed on the interest paid on a home loan for a self-occupied property. For rented properties, there’s no limit on the deduction for interest.

  • Section 80E (Education Loan Interest): Taxpayers can claim a deduction on the interest paid on education loans, with no upper limit, for a period of 8 years starting from the year in which interest repayment begins.

  • Section 80G: Donations made to certain charitable institutions and funds are eligible for deductions. Depending on the entity, the deduction can be 50% or 100% of the donation amount, subject to certain limits.

  • Section 80CCD(1B): Additional deduction of up to ₹50,000 is available on contributions to the National Pension System (NPS), over and above the limit of ₹1.5 lakh under Section 80C.

  • House Rent Allowance (HRA): Salaried individuals living in rented accommodation can claim tax exemption on HRA. The amount exempted depends on salary, actual rent paid, and location of residence (metro or non-metro city).

Taxation for Businesses

Businesses in India are taxed based on their structure (e.g., sole proprietorship, partnership, or company) and their income. Below are key aspects of business taxation:

  • Corporate Tax: For domestic companies, the current corporate tax rate is 22% (without exemptions). However, new manufacturing companies can avail of a lower tax rate of 15%.

  • Minimum Alternate Tax (MAT): Companies that have low taxable income due to exemptions or deductions still need to pay a minimum tax, known as MAT, which is set at 15% of their book profits.

  • Partnership Firms and LLPs: Partnership firms and Limited Liability Partnerships (LLPs) are subject to a flat tax rate of 30%. In addition, there is a surcharge of 12% for income exceeding ₹1 crore.

Goods and Services Tax (GST)

Introduced in July 2017, the Goods and Services Tax (GST) replaced several indirect taxes like VAT, service tax, and excise duty. GST is a destination-based consumption tax, levied on the supply of goods and services at every stage of production and distribution.

  • GST Structure: India follows a multi-tier GST rate system: 0%, 5%, 12%, 18%, and 28%, depending on the type of goods and services.

  • CGST, SGST, and IGST: For intra-state transactions, the tax is split equally between the central government (CGST) and the state government (SGST). For inter-state transactions, Integrated GST (IGST) is levied, collected by the central government, and then distributed to the respective states.

  • GST Returns: Businesses must file monthly, quarterly, and annual GST returns depending on their turnover. This system ensures transparency and accurate tax collection.

Tax Compliance and Filing

  • Tax Filing Deadline: Individuals need to file their income tax returns (ITR) by July 31 of the assessment year. Businesses generally have until September 30.

  • Advance Tax: Taxpayers with tax liability exceeding ₹10,000 must pay advance tax in four installments during the financial year to avoid penalties.

  • Tax Deducted at Source (TDS): Employers and other entities must deduct tax at the source when paying salaries, rent, or other payments and remit it to the government. Individuals can claim this deducted amount as credit when filing returns.

  • Penalties for Non-Compliance: Late filing of returns attracts penalties, and failure to pay taxes can lead to interest charges, penalties, or legal consequences.

Recent Changes in Indian Taxation

The Indian tax landscape has seen several reforms aimed at simplifying tax structures and promoting transparency:

  1. Faceless Assessment Scheme: The Indian government introduced faceless assessments to reduce human interaction between taxpayers and tax authorities, thereby minimizing corruption and ensuring fairness.

  2. Reduction in Corporate Tax Rates: In recent years, corporate tax rates have been reduced to make India more competitive globally and encourage investment.

  3. Increased Focus on Digitization: With initiatives like the Income Tax e-Filing portal and digital GST compliance, India’s tax system is becoming more streamlined, allowing taxpayers to file returns and comply with tax regulations online.

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Tax In India