Indian Taxation
Taxes in India are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Council.
The authority to levy a tax is derived from the Constitution of India which allocates the power to levy various taxes between the Centre and the State. An important restriction on this power is Article 265 of the Constitution which states that “No tax shall be levied or collected except by the authority of law.” Therefore each tax levied or collected has to be backed by an accompanying law, passed either by the Parliament or the State Legislature.
Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is an assesse, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status.
Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.
Income tax in India is based on the residential status of the assesse, it is calculated based on the number of days spent in the country. There can be three types of residential status:-
Resident and Ordinary resident.
Resident and Not ordinary resident.
Non-Resident.
Residents are taxed all income including Income earned outside India. Non residents are taxable only for the income received in India or Income accrued in India.
Not-Ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.
The total income of a person is divided into five heads:-
Salaries
Income from House Property
Profits and Gains of Business or Profession
Capital Gains
Income from Other sources
With a view to attract investment by Non-resident Indians (NRIs) and Indian Nationals living abroad, certain reliefs, exemptions and incentives have been provided in the scheme of income taxation. Chapter XIIA of the Income Tax Act contains special provisions relating to taxation of non-resident Indians. Non-resident Indian has been defined as an individual being a citizen of India or a person of Indian origin, who is not a resident. A person is considered to be of Indian origin if he or either of his parents or any of his grand-parents was born in undivided India.
Non-residents of Indian nationality/origin may invest in shares either singly or jointly with their close relative’s resident in India. The Reserve Bank of India permits such joint holdings with repatriation benefits, provided-
The investment is made by sending remittances from abroad or out of funds held in the Overseas Investor’s Non-resident (External) Account or FCNR account.
The first holder of shares is the non-resident Indian who actually made the investment out of his funds and
The resident holder is closely related to the nonresident investor.
Remittance/repatriation of capital/dividend will be allowed to the non-resident investor, i.e. the first holder. In the event of the joint resident holder inheriting shares, he/she will not be entitled to any remittance/repatriation facilities. The special tax incentives provided in the Act to non-residents of Indian origin are available only to them and not to the resident Indians.
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