Expatriate tax ebook - India

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Capital gains means any profits or gains arising from the transfer of a capital asset. Capital assets are divided into long term or short term assets, with reference to the period of holding of the asset.

Shares in a company or any other security listed on a recognised stock exchange in India or a unit of a mutual fund held for more than 12 months, and all other assets held for more than 36 months, are classified as long term capital assets; otherwise they are considered short term capital assets.

The long term capital gain is subjected to a flat rate of income tax at 20%. However, exemptions are available for certain assets. Short term capital gains will be included in the total income of the assessee and charged at the regular rates of income tax. However, short term capital gains arising from the sale of securities on a recognised stock exchange are taxable at a flat rate of 15%.

The income tax calculated will then be further increased by the applicable surcharge and education cess @ 3% of the income tax so computed.

Inheritance, estate & gift taxes
There is no estate duty and gift tax in India. However, gifts from unrelated persons exceeding the prescribed amount are chargeable to tax as income.

Investment income
Interest income and other investment income arising to individuals in India are taxable in India. Dividends paid by Indian companies on which dividend distribution tax has been paid are exempt from tax in the hands of the recipient.

Local taxes
Depending on the State, the employer may be required to deduct the profession tax from the remuneration paid to employee and pay this to the profession tax authority.

Real estate tax
Property tax is levied on property by the local authority.

Social security taxes
There are no social security taxes in India.

Stock options
From F.Y. 2007-08:

• The value of the benefit arising out of allotment of such shares, securities, etc would be taxable in the hands of the company as FBT at the time of allotment or transfer of options. However, the value of such shares, securities etc. shall be determined as on the date of vesting of the option.
• Valuation rules have been prescribed for the purpose of determining the value of such benefits.
• Employees would be liable to capital gains tax at the time of sale of shares received upon the exercise of the options.

Wealth tax
Wealth tax is chargeable in respect of the net wealth of every individual, Hindu undivided family (HUF) and Company comprising certain non productive assets @ 1% of the amount by which the net wealth exceeds Rs.1.5 million per year.

Other specific taxes
Surcharge
The surcharge for F.Y. 2008-09 is 10% of the income tax charge, if the net income of an individual, Hindu undivided family, association of persons, or body of individuals, exceeds Rs. 1,000,000.

Education cess
An education cess of 3% is payable in addition to the tax and surcharge mentioned above.

Information about India:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities