Apr. 29 – Individual income tax (IIT) is the direct tax paid on personal income by an individual or a company to the central government. The Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance. In this article, we discuss income source and residency, income tax payment, the definition of salary, income tax rates and tax deductions at source.
Income Source and Residency
Personal taxation in India depends on the income source and a person’s residential status, which is determined by the length of time spent in India. Residential statuses include: resident and ordinarily resident (ROR), resident but not ordinarily resident (RNOR) or non-resident (NR).
Under the Income Tax Act, an individual (non-Indian citizen or non-resident Indian) is said to be resident in India in any previous year, if he:
- Is in India in that year for a period amounting to 182 days or more; or
- Is in India for a period amounting to 60 days or more in that year, after having already been in India for a period amounting to 365 days or more within the preceding four years.
A person is said to be “not ordinarily resident” in India in any previous year if such person is an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to 729 days or less.
Salary income is liable for personal income tax in India if the services are rendered in India, regardless of where the salary is received. RORs are also taxed on other types of income worldwide, while RNORs and NRs are only taxed on other income when that income is received or accrues/arises in India.
Income Tax Payment
According to the Income Tax Act, it is the obligation of the employer to withhold personal income taxes from the salary paid to an employee and deposit these taxes with the Indian revenue authorities. This applies to Indian employers and foreign employers, for domestic and expatriate staff. Personal income tax is governed by the Central Board for Direct Taxes (CBDT), part of the Department of Revenue under the Ministry of Finance.
A Permanent Account Number (PAN) is a 10-digit alphanumeric code printed on an identification card for the reference of the Income Tax Department. Companies are required to obtain a PAN during the establishment process in order to file an income tax return, to manage any correspondence with the Income Tax Department, and to submit challans for tax payment.
