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India: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents of India are subject to tax on their worldwide income. To be considered as a resident for taxation purposes, one should have stayed in the country for 182 days or more within the tax year (01 April - 31 March), or have stayed for 60 days or more within the tax year and an aggregate of 365 days for the preceding four years.

INCOME TAX

Income is classified according to the following: salaries, income from house property, income from a business or profession, capital gains, and income from other sources. Computation of taxable income varies depending on the income classification.

The total income derived from each of the sources is aggregated to arrive at the gross total income. Net taxable income is gross total income less deductions. Income is taxed at progressive rates.

A surcharge of 10% of the total tax liability is applicable where the total income exceeds INR1,000,000 (US$20,588).

Tax exemption for a resident woman is INR145,000 (US$3,688) and a resident senior citizen is entitled to a tax-free amount of INR195,000 (US$4,960).

Residents are also entitled to the following deductions:

• Maximum of INR100,000 (US$2,059) for pension contributions, life insurance payments, etc.
• Maximum of INR15,000 (US$309) for medical insurance premiums
• Maximum of INR40,000 (US$824) for medical expenses not covered by medical insurance
• Up to INR75,000 (US$1,544) for physically handicapped taxpayers or for taxpayers with physically handicapped dependents
• Interests on loans for higher education
• Repayment of mortgage principal and interest

Education Cess

An education cess of 3% is levied on the total income tax liability.

RENTAL INCOME
Income earned from leasing land, buildings, and furniture are subject to a non-final 15% withholding tax, levied on the gross rent. This tax is credited against the taxpayer’s total income tax liability.

A standard deduction of 30% for repairs and collection charges, interest payments relating to loans used for the construction, acquisition, and repairs of the property are deductible from rental income, which is covered by income from house property.

CAPITAL GAINS
Capital gains realized from selling real property are taxed at the standard income tax rates. Taxable capital gains are computed by deducting acquisition costs and incidental expenses from the gross sales proceeds.

Capital gains realized from real property are subject to non-final withholding taxes, levied on the gross sales proceeds. Short-term capital gains are subject to 10% withholding tax while long-term capital gains (holding period exceeds three years) are subject to 20% withholding tax. This tax is credited against the taxpayer’s total income tax liability.

Wealth Tax

Net wealth tax is levied at 1% on a taxpayer’s net assets if it exceeds INR1,500,000 (US$30,881). Net assets are computed by deducting debts relating to the properties against their aggregate value. The income tax authorities are generally responsible for assessing the property value. Self assessment is also possible but there are interests and penalties for defaults.

PROPERTY TAXATION

Property Tax

There is no comprehensive system of property taxation. Not only does it differ among the states, but it also varies between the municipalities within the states. For leased properties, property tax is levied on the annual rental value of the property. In Delhi, property taxes range from 6% to 10%.

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