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Definition and rules of the Indian Income Tax System

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Income Tax in India, definition about resident, nonresident and not ordinarily resident Indians.

Income Tax in India - Definition

In Income Tax in India are divided in to two types they are, Direct Taxes and Indirect Taxes.

Income Tax, Wealth Tax, etc., where the entire burden falls in the taxpayer directly is called as Direct Taxes, where as like Service Tax, VAT, etc., are called as indirect taxes as these will be passed on through a third party.

Income tax can be defined as all sources of income other than agricultural income which Central Government collects levies on that and shares the same with the states.

As per Income Tax Act of 1961, all persons who are considered as an assessee and their when their income exceeds the maximum exemption in the prescribed limit and the income tax will be levied at the prescribed rates according to finance act, such type of income tax has to be paid on the total income in the previous year to be paid in relevant assessment year.

On most of the times the total income of an individual will be determined on the basis of the person’s residential status in India.

Income Tax in India - Residence Rules

According the Income tax laws an individual can be treated as an resident in the year if
- he is present in India if he stays during the year for 182 days or more and
- another clause says if a person stays in India for 60 days during the year or stayed 365 days during the preceding four years

if a person fulfills anyone of the above said clause will be considered as an resident. Those who not fulfill either of the one above mentioned are not considered as residents and they will be treated as non-residents.

But these rules are slightly liberal for those Indian citizens who are residing abroad or about to leave India for employment purpose.

If a resident who is not present in India for more than 730 days during the last or preceding seven years or who were been considered as nonresidents in the last nine years out of last ten preceding years are considered as not ordinarily residents, ultimately to say a newcomer to India will remains as not ordinarily resident.

But for tax purpose the individuals can be residents, nonresidents or not ordinarily residents, the tax on their income which earned during their stay in the country if they have earned in that period of stay will come under Income tax rules and if such income exceeds the limit prescribed from time to time by the Government of India will be levied and has to be paid in the prescribed time of limit.

Income Tax in India - Non-Residents and Non-Resident Indians

Residents can be on worldwide income such income will be levied as per the law, but nonresidents are taxed only when they receive income in their time of stay in India and received in India, even if is deemed to arise in India will be taxed and even an not ordinarily resident will be taxed like an nonresident and is also liable to pay tax on income which is or was accrued abroad, and such income was or is accrued out of some business controlled in through a professional set up in India.

But where as nonresident Indians will not have to pay or to file tax returns if such income consists about interests and or dividends, and if taxes which were due on such incomes were already deducted at source.

There are provisions under Income tax that even nonresident Indians can avail some special provisions after they become residents through certain procedures laid down by the Department of Income Tax.
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Responses to "Definition and rules of the Indian Income Tax System"
Guest Author: S P Singh   27 May 2015
What does consideration mean under section 54F of ITax? Is initial purchase cost reduced from sale Value?


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