Delhi

Taxation in Delhi, India

What are the tax rates in Delhi, India? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Delhi, India.

Personal taxation in Delhi

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate20%24%27%28%29%

Teleport city rankings for personal income tax

Personal taxation puts Delhi in position 92 of all Teleport Cities.
WORSTBEST

Residence

An individual is resident in India if he/she spends at least 182 days in the country in a given year, or at least 60 days if the individual has spent at least 365 days in India in the preceding four years. For an Indian citizen leaving India for the purpose of employment or as a member of the crew of an Indian ship, and for an Indian citizen/person of Indian origin working abroad who visits India while on vacation, the threshold is 182 days in the given year, instead of 60 days. An individual is “not ordinarily resident” if he/she has not been a resident in nine out of the 10 preceding years, or has been in India for less than 730 days during the preceding seven years.

Filing status

Each taxpayer must file a return; the concept of joint filing does not exist in India.

Penalties

Penalties apply for failure to file a return, failure to comply with withholding tax obligations and concealment of income.

Taxable income

Income from employment, including most employment benefits, is fully taxable after considering applicable exemptions. Profits derived by an individual from the carrying on of a trade or profession generally are taxed in the hands of the individual, after applying available tax exemptions and tax-free thresholds (see “Rates” below).

Basis

An individual who is resident and ordinarily resident in India normally is taxed on worldwide income, subject to the provisions of a relevant tax treaty. A person who is not ordinarily resident generally does not pay tax on income earned outside India unless it is derived from a business or profession controlled or established in India, or the income is accrued or received in India or deemed to have accrued or been received in India. A nonresident is subject to tax only on Indian- source income.

Other taxes on individuals

Stamp duty

Financial instruments and transactions in India attract stamp duties that are levied under the Indian Stamp Act and the stamp acts of the various states (with rates varying significantly between states).

Social security

All employees (including “international workers” but not “excluded employees,” as defined in the Provident Fund Act) contribute 12% of eligible wages per month to the Provident Fund, with a matching 12% contribution by the employer. However, where India has entered into Social Security Agreement (SSA) with the relevant overseas country, the international worker (subject to certain conditions) is not liable to contribute to the Provident Fund in India. An international worker may be either: (1) a foreign employee working for an establishment in India to which the Provident Fund Act applies; or (2) an Indian employee seconded to a country with which India has entered into an SSA and who has not obtained a “certificate of coverage” and eligible for SSA benefits.

Net wealth/net worth tax

The 1% wealth tax that applied on the aggregate value exceeding INR 3 million of certain nonproductive assets was abolished as from 1 April 2015.

Other

Customs duty is levied on the import of goods into India, although certain exported goods also are liable to customs duties.

Compliance for individuals

Filing and payment

The employer withholds tax on salary income. All individual taxpayers are required to file an individual tax return. Individuals must prepay 100% of the final tax due by the end of the fiscal year, either via withholding at source or by making advance payments in three installments (with interest payable on underpayments). Returns are due by 31 July (30 September for specified individuals) of the assessment year. Electronic filing of tax returns is mandatory if: (1) taxable income exceeds INR 500,000;

Rulings

The Authority for Advance Rulings (AAR) issues rulings on the tax consequences of transactions or proposed transactions with nonresidents. It also is able to issue rulings in relation to the tax liability of residents in prescribed cases. From 1 April 2015, the AAR is able to issue rulings on whether an arrangement is an impermissible avoidance arrangement. Rulings are binding on the applicant and the tax authorities for the specific transaction(s). APAs also are possible.

Tax year

The tax year is the fiscal year (1 April to 31 March).

Corporate taxation in Delhi

Teleport city rankings for corporate income tax

Corporate taxation puts Delhi in position 230 of all Teleport Cities.
WORSTBEST

Basis

Residents are taxed on worldwide income; nonresidents are taxed on Indian-source income only. Indian-source income may include capital gains arising from the transfer of any share or interest in a company or entity registered or incorporated outside India if the share or interest directly or indirectly derives its substantial value from assets located in India. Foreign-source income derived by a resident company is subject to corporation tax in the same way as Indian income. A branch of a foreign corporation is taxed as a foreign corporation.

Taxation of dividends

Dividends paid by a domestic company are subject to dividend distribution tax (DDT) at 15% of the aggregate dividend declared, distributed or paid. The DDT payable is required to be grossed up. The effective rate is 20.3576% (increased from 19.9941% as from 1 April 2015), including a 12% surcharge (increased from 10% as from 1 April 2015) and a 3% education cess. Dividends subject to DDT are exempt from tax in the hands of the recipient.

Residence

A corporation is resident if it is incorporated in India or if its place of effective management, in that year, is in India.

Losses

Business losses and capital losses may be carried forward for eight years, with short-term capital losses offsetting capital gains on both long and short-term assets, and long-term capital losses offsetting only long-term capital gains. Other than unabsorbed depreciation (which may be carried forward indefinitely), losses may be carried forward only if the tax return is filed by the due date. Unabsorbed depreciation may be offset against any income, whereas business losses may be offset only against business profits in subsequent years.

Incentives

A deduction of up to 200% is available in respect of capital and revenue expenditure on scientific research conducted in- house by specified industries, and for payments made to specified organizations for scientific research.

Rate

The rate is 30% for domestic companies and 40% for foreign companies and branches of foreign companies. Taking into account the surcharge and cess, the highest effective rate is 34.608% for domestic companies and 43.26% for foreign companies.

Alternative minimum tax

A Minimum Alternate Tax (MAT) is imposed at 18.5% (plus any applicable surcharge and cess) on the adjusted book profits of corporations whose tax liability is less than 18.5% of their book profits. As from 1 April 2015, MAT does not apply to certain income of foreign companies, including capital gains on transactions involving securities, interest, royalties and fees for technical services (the government has announced it will retroactively amend the MAT provisions to clarify the applicability to foreign companies prior to 1 April 2015). A credit is available for MAT paid against tax payable on normal income, which may be carried forward for offset against income tax payable in the following 10 years.

Surtax

A 7% surcharge (increased from 5% as from 1 April 2015) applies to domestic companies if income exceeds INR 10 million (2% for foreign companies), and a 12% surcharge (increased from 10% as from 1 April 2015) applies if income exceeds INR 100 million (5% for foreign companies). An additional 3% cess is payable in all cases.

Foreign tax credit

Foreign tax paid may be credited against Indian tax on the same profits, but the credit is limited to the amount of Indian tax payable on the foreign income.

Taxable income

Tax is imposed on a company’s profits, which consist of business/trading income, passive income and capital gains. Income resulting from the indirect transfer of assets located in India is included. Normal business expenses, as well as other specified items, may be deducted in computing taxable income.

Capital gains

The tax treatment depends on whether gains are long or short term. Gains are long term if the asset is held for more than three years (one year in the case of listed shares and specified securities). Long-term gains on listed shares and specified securities are exempt if the transaction is subject to securities transaction tax (STT). Where such gains are not subject to STT, a 10% tax applies (without the benefit of an inflation adjustment). The applicable tax rate on long-term capital gains derived by a nonresident from the sale of unlisted securities is 10% (without the benefit of foreign currency

Other taxes on corporations

Real property tax

Each state levies property tax, with rates varying from state to state.

Social security

The employer generally contributes 12% of eligible wages per month to the Provident Fund. From that contribution, 8.33% of the wages (up to INR 15,000) are applied to the pension fund, with the balance paid to the Provident Fund. The employer also must pay a gratuity to workers who have rendered continuous service for at least five years at the time of retirement, resignation, superannuation, etc., at the rate of 15 days’ wages for every completed year of service (up to a maximum of INR 1 million).

Other

The 1% wealth tax that applied on the aggregate value exceeding INR 3 million of certain nonproductive assets was abolished as from 1 April 2015.

Transfer tax

STT is levied on the purchase or sale of equity shares, derivatives or units in an equity-oriented fund listed on a recognized stock exchange in India.

Stamp duty

Financial instruments, real property and other specified transactions (including a court order for an amalgamation/ demerger) in India attract stamp duties that are levied under the Indian Stamp Act and the stamp acts of the various states (with rates varying significantly between states).

Compliance for corporations

Penalties

Penalties apply for failure to file a return and certificate of international transactions, failure to comply with withholding tax obligations and concealment of income.

Filing requirements

Taxes on income in a fiscal year usually are paid in the next fiscal year (“assessment” year). Companies must submit a final return by 30 September (30 November for companies required to file a certificate on international transactions (see “Transfer pricing” above)) of the assessment year, stating income, expenses, taxes paid and taxes due for the preceding tax year. Returns for noncorporate taxpayers that are required by law to have their accounts audited also are due on 30 September. All other taxpayers must submit a return by 31 July. Taxpayers claiming tax holidays or carrying forward tax losses must file their returns on or before the due date.

Consolidated returns

Consolidated returns are not permitted; each company must file a separate return.

Other

See under “Corporate taxation” regarding the AMT. AMT is not applicable to individuals, associations of persons and bodies of individuals if their adjusted total income does not exceed INR 2 million.

Rates

Rates are progressive up to 30%, plus the applicable cess. A 12% surcharge (increased from 10% as from 1 April 2015) applies if income exceeds INR 10 million, subject to applicable marginal relief. The first INR 300,000 is exempt for resident senior citizens (aged 60 years or over, but under 80 years), and INR 500,000 is exempt for very senior citizens (at least 80 years of age); for all others, the first INR 250,000 is exempt. A tax rebate up to INR 2,000 is allowed for individuals with taxable income of up to INR 500,000.

Tax year

The tax year is the fiscal year (1 April to 31 March).

Capital gains

See under "Corporate taxation."

Deductions and allowances

Deductions are available in respect of certain payments and investments, such as contributions to the Provident Fund, pension funds, medical insurance or life assurance policies and some savings schemes, etc., subject to applicable limits.

Other taxation in Delhi

Value added tax

Filing and payment

VAT returns must be filed and payments made monthly, quarterly or half yearly, based on the tax liability. The filing and payment deadlines may vary from state to state.

Other

Central excise duty is levied on the manufacture of excisable goods in India. The top rate of central excise duty is 12.5%.

Rates

The standard VAT rate in the various states ranges from 12.5% to 15%, depending on the state, with reduced rates of 1% and 5% in most states. Commodities like liquor and petroleum products attract a higher rate in the range of 20% to 30%.

Taxable transactions

All Indian states impose a “consumption- type destination-based VAT,” driven by the invoice tax credit method, on the sale of most types of movable goods and specified intangible goods (barring a few exempt goods), the list of which varies from state to state.

Registration

The turnover limit for compulsory registration for businesses is INR 500,000, although this may vary by state. State

Anti-avoidance rules

Disclosure requirements

A nonresident with a liaison office in India is required to prepare financial statements, annual activity certificates, etc. on its activities and submit this information to the Indian tax officer within 60 days from the end of the financial year.

Transfer pricing

The transfer pricing regime is influenced by OECD norms, although the penalty provisions in India are stringent compared to those in certain other countries. The definition of “associated enterprise” extends beyond a shareholding or management relationship, since it includes some deeming clauses. The scope of the transfer pricing provisions also cover “specified domestic transactions” (including payments to related parties) if the aggregate value of those transactions exceeds INR 200 million in one year.

Other

To discourage transactions with persons located in jurisdictions that do not effectively exchange information with India, transactions with persons situated in certain jurisdictions designated by the government will be subject to the Indian transfer pricing rules and income paid to persons in those jurisdictions will be subject to a minimum withholding tax of 30%. India has designated Cyprus as such a jurisdiction.

Withholding tax

Dividends

Dividends are not subject to withholding tax. However, the company paying the dividends is subject to DDT.

Technical service fees

Technical service fees paid to a nonresident are subject to a 10% withholding tax (reduced from 25% as from 1 April 2015), plus the applicable surcharge and cess. The rate may be reduced under a tax treaty.

Interest

Interest paid to a nonresident on a foreign currency borrowing or debt generally is subject to a 20% withholding tax, plus the applicable surcharge and cess. The rate may be reduced under a tax treaty.

Royalties

Royalties paid to a nonresident are subject to a 10% withholding tax (reduced from 25% as from 1 April 2015), plus the applicable surcharge and cess. The rate may be reduced under a tax treaty.