· Resident taxpayers are taxed on
their worldwide income.
· Nonresident taxpayers are taxed
only on income received in India or on income arising (or deemed to arise) in
· Corporate income is taxed both at
corporate level and to shareholders upon distribution as dividends.
· The accounting year for tax
purposes must end on March 31.
· Substance prevails over form if
form is misused.
· Advance rulings for transactions
involving nonresidents have been introduced.
taxation relief is offered to residents through credits under the Income Tax
Act and under the tax treaties.
of income taxation
tax system in India is unitary. Income less permissible expenses from all
sources (other than long-term capital gains) of each tax payer s aggregated and
subject to tax at a flat rate in the case of companies and partnership firms
and at progressives rates in the case of other taxpayers. Long-term capital
gains are concessionally taxed at lower rates.
are taxed on their worldwide income. Subject to treaty exemptions, nonresidents
are taxed only on income that is received in India or that arises in India or
is deemed to arise in India.
follows the "classical system," under which corporate income is taxed
both to the corporation and upon distribution to the shareholders as dividends.
However, dividends received by one domestic company from another domestic
company are not taxed in the hands of the recipient company to the extent it
distributes the dividends to its shareholders within the time allowed for
filing its tax return.
source of income
income arises in India if it becomes due in India. This depends on where the
income-producing asset is located, where the services giving rise to the income
are performed, where the sale is effected, and other considerations. In
addition, the Income Tax At specifically mentions that the following income is
deemed to arise in India.
arising directly or indirectly through or from any business connection in
India; through or from any property, asset or source of income in India; or
through the transfer of a capital asset situated in India.
2. Salaries earned in India, even if paid outside India.
3. Dividends paid by Indian companies outside India.
4. Interest, royalties or technical service fees payable by the government.
5. Interest, royalties or technical service fees payable by persons other than
the government unless the funds borrowed, the patent, the technical
information, etc., are utilized in a business outside India or for earning
income from a source outside India.
categories of deemed Indian-source income are subject to the following
1. In the
case of a business with some operations not performed in India, the income
deemed to arise in India is only that part or the income reasonably
attributable to the operations performed in India.
2. In the case of nonresidents, no income is deemed to arise in India from
operations that are confined to the following:
a. Purchase of goods in India for the purpose of export;
b. Collection of news for transmission out of India in the case of a
nonresident publisher of newspapers, magazines or journals;
c. Shooting of cinematographic films in India by foreigners and nonresident
firms or companies not having any partner or shareholder who is an Indian
citizen or Indian resent; and
d. Transfer of rights in computers and software by a nonresident manufacturer
along with computer-based equipment under an approves scheme of the government
of India, against lump-sum payment.