Tax & Residency Guide in India

# Comprehensive Tax Guide for India

## Residency Triggers: In India, residency for tax purposes is determined based on the number of days an individual spends in the country. There are two categories of residency: 1.

Resident

An individual is considered a resident if they have been in India for 182 days or more in the financial year, or if they have been in India for 60 days or more in a financial year and 365 days or more in the preceding four financial years. 2.

Non-Resident

Anyone who does not meet the above criteria is considered a non-resident for tax purposes.

## Tax System Type: India follows a progressive tax system, with tax rates increasing as income levels rise. The income tax system in India is divided into slabs, each with its own tax rate.

## Tax Treaties: India has signed Double Taxation Avoidance Agreements (DTAA) with several countries to prevent individuals from being taxed on the same income in both countries. These treaties aim to provide relief to taxpayers who may otherwise face double taxation.

## Entity Options: For individuals looking to establish a business in India, there are several options available, including: 1.

Sole Proprietorship

A simple and cost-effective business structure where the individual owns and operates the business. 2.

Partnership

A business structure where two or more individuals share ownership and responsibility. 3.

Private Limited Company

A separate legal entity with limited liability for shareholders. 4.

Limited Liability Partnership (LLP)

A hybrid structure combining the benefits of a company and a partnership.

## Filing Requirements: Individuals in India are required to file an income tax return if their total income exceeds the basic exemption limit, which varies depending on the age and status of the taxpayer. The due date for filing income tax returns in India is typically July 31st of the assessment year.

## Tax Rates and Deductions: Tax rates in India vary based on income levels and tax slabs. For the financial year 2021-22, the tax rates are as follows: - Up to ₹2,50,000: Nil - ₹2,50,001 to ₹5,00,000: 5% - ₹5,00,001 to ₹10,00,000: 20% - Above ₹10,00,000: 30%

Various deductions and exemptions are available to taxpayers in India, such as deductions for investments in specified instruments like Provident Fund, National Savings Certificates, and insurance premiums.

## When to Hire an Advisor: It is advisable to seek the assistance of a tax advisor in India if you are unfamiliar with the tax laws, have complex financial situations, or wish to optimize your tax planning strategies. A tax advisor can provide valuable guidance on tax compliance, deductions, and exemptions.

## Country-Specific Strategies: 1.

Investment in Tax-Saving Instruments

Consider investing in tax-saving instruments such as Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and National Pension System (NPS) to avail of deductions under Section 80C of the Income Tax Act. 2.

Tax Planning

Plan your investments and expenses strategically to maximize tax benefits and reduce your overall tax liability. 3.

Capital Gains Tax

Be aware of the tax implications on capital gains from the sale of assets such as property, stocks, and mutual funds, and consider the indexation benefit for long-term capital gains. 4.

NRI Taxation

Non-Resident Indians (NRIs) have specific tax considerations in India, such as taxation on income earned or received in India. It is essential for NRIs to understand their tax obligations and avail of any applicable tax benefits.

In conclusion, understanding the tax system in India, residency triggers, filing requirements, tax rates, deductions, and available strategies is crucial for individuals and businesses to comply with tax laws and optimize their financial planning. Consider seeking professional advice to navigate the complexities of the Indian tax system effectively.