A. K. Chopra & Co. Chartered Accountants

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India has embarked on a series of tax reforms since early 1990s. The focus of reforms has been on rationalization of the tax rates and simplification of procedures.

In India tax is levied by central, state and local government bodies. Principal taxes including corporate tax, custom duties, central excise duty and services tax are levied by the central government. On the other hand states levy principal taxes like state excise duties, sales tax and stamp duties. Local government bodies levy octroi duties and other taxes of local nature like water tax and property taxes.

Income earned in a financial year is liable to tax as per the rates prescribed for that year. A financial year runs from 1 April to 31 March of the following year. India follows a residence based taxation system. Broadly, taxpayers may be classified as residents or non-residents. Individual taxpayers may also be classified as 'residents but not ordinary residents.

An Indian company is always an Indian resident. Additionally, any other company whose affairs are wholly controlled and managed from India is also a resident. Any other company would be a non-resident.

Residential Status An individual is resident in India if he is in India in the tax year for:

182 days or more; or

60 days or more (the period of 60 days stands changed to 182 days or more for Indian citizens or persons of Indian origins on a visit to India; and also for citizens of India who leave India for employment abroad as member of a crew of an Indian ship) during the tax year, and an aggregate of 365 days or more during the four years preceding the tax year

An individual who does not satisfy the above conditions is a non-resident

A resident is "not ordinarily resident" in India in any tax year if he has been "non-resident" in India in nine out of the 10 previous years preceding that year or has during the previous seven years, preceding that year, been in India for a total period of 729 days or less