India - Taxation

Taxes are levied by the central government, the state governments, and the various municipal governments. The sources of central government tax revenue are union excise duties, the central value-added tax or CENVAT, corporate and personal income (nonagricultural) taxes, wealth taxes, and customs duties. The gift tax was abolished in January 1998. State government sources, in general order of importance, are land taxes, sales taxes, excise duties, and registration and stamp duties. The states also share in central government income tax revenues and union excise duties, and they receive all revenues from the wealth tax on agricultural property. Municipal governments levy land and other property taxes and license fees. Many also impose duties on goods entering the municipal limits. There is little uniformity in types or rates of state and municipal taxes.

The lowest level of income subject to taxation was lowered to r50,000 for individuals in 2000, less than half the previous level. Income tax rates are progressive and form four brackets: 0% on taxable income to R 50,000 ($1,035); 10% on taxable income between R 50,000 and R 60,000 ($1,240); 20% on income between R 60,000 and R 150,000 ($3,000) plus R 1000 ($20); and 30% on income above R 150,000 plus R 19,000 ($390). In 2002/03, surcharges of 12% and 17% on incomes of R 60,000 and R 150,000, respectively, were replaced with a 2% surcharge on all incomes above R 60,000.

Corporate income tax for domestic companies as of 1 April 2001 is 35% plus a 5% surcharge, and for foreign companies 40% plus a 5% surcharge, down from 48%.

The wealth tax is one percent of wealth exceeding R 1,500,000 ($31,000). Interest income is taxed at 10%; rental income; capital gains at 20% at 15%; and winnings from lotteries and horse races at 30%. There is not tax on dividends.

The central government imposes a 16% value-added tax (VAT) called the CENVAT introduced in 2001/02. The CENVAT has not been fully implemented throughout India; this is scheduled for completion in 2005.

For the 2003/04 Union Budget, the excise structure was rationalized into four tiers: exempt items many of which had carried 4% rates (like umbrellas, band-aids, toys, corrective glasses, CDs); 8% (like pressure cookers, buckets, dental chairs); 16% (the standard VAT rate applied to most items), and 24% reduced from 20% to 50% on polyester filament yarn, motor cars, utility vehicles, and replacement tires. Special Excise Duties of 32% are applied to aerated soft drinks and concentrates, pan masala, and chewing tobacco.

As of 1 April 2003, instead of being 100% tax free, profits and gains derive from Software Technology Parks of India (STPIs) and export oriented units (EOUs) will only be 90% tax-free.