India levies taxes at both the central and state level, covering income, consumption, imports, capital gains, property, and professional earnings. Taxes in India are split by the Constitution under Article 246: Parliament handles income tax, the central share of goods and services tax, and customs duties, while states collect their own GST share, stamp duty, and professional tax. What you actually owe depends on your residency status, how much you earn, and where the income comes from.
Income Tax on Individuals
Personal income tax is governed by the Income Tax Act of 1961 and administered by the Central Board of Direct Taxes. Since April 2024, every individual taxpayer sits in the new tax regime by default. You can still choose the old regime, but you have to opt out actively when you file. If you have business income, switching out of the default requires Form 10-IEA before the filing deadline.
The new regime for FY 2025–26 uses seven slabs:
- Up to ₹4,00,000: no tax
- ₹4,00,001 to ₹8,00,000: 5%
- ₹8,00,001 to ₹12,00,000: 10%
- ₹12,00,001 to ₹16,00,000: 15%
- ₹16,00,001 to ₹20,00,000: 20%
- ₹20,00,001 to ₹24,00,000: 25%
- Above ₹24,00,000: 30%
A rebate under Section 87A wipes out the tax bill entirely for anyone earning up to ₹12 lakh under the new regime. Salaried individuals also get a ₹75,000 standard deduction, which pushes the effective zero-tax point to roughly ₹12.75 lakh.1Income Tax Department. Returns and Forms Applicable for Salaried Individuals for AY 2025-26
The old regime has fewer slabs but allows far more deductions. For individuals under 60:
- Up to ₹2,50,000: no tax
- ₹2,50,001 to ₹5,00,000: 5%
- ₹5,00,001 to ₹10,00,000: 20%
- Above ₹10,00,000: 30%
The old regime’s standard deduction is ₹50,000. Whether you save more under the old or new regime depends entirely on how many deductions you can actually claim, so run the numbers both ways before you file.
Surcharges, Cess, and Corporate Rates
High earners pay more than the slab rate. A surcharge kicks in once income crosses ₹50 lakh. Under the new regime, it’s 10% between ₹50 lakh and ₹1 crore, 15% between ₹1 crore and ₹2 crore, and 25% above ₹2 crore. The old regime adds a 37% tier for income above ₹5 crore. Marginal relief near each threshold prevents you from losing more to the surcharge than the extra income that triggered it.
On top of that, every taxpayer pays a 4% Health and Education Cess on the total of income tax plus surcharge. It funds public health and education and applies at every income level.
Domestic companies pay a base rate of either 25% or 30%. Turnover up to ₹400 crore in the relevant year qualifies for the lower rate. A concessional 22% rate is available under Section 115BAA for companies willing to forgo most exemptions and deductions, and new manufacturing companies can opt for 15% under Section 115BAB. Applicable surcharges and the 4% cess apply to corporate tax as well.2India Code. The Income-tax Act, 1961
Goods and Services Tax
GST, introduced in 2017, replaced a patchwork of central excise duties, service taxes, and state VATs. It’s a destination-based consumption tax, so revenue goes to the state where the goods or services are ultimately consumed. The Central Board of Indirect Taxes and Customs administers it.3India Code. Central Goods and Services Tax Act, 2017
Four standard rates apply: 5%, 12%, 18%, and 28%. Basic food grains carry lower rates or no GST at all; luxury items and tobacco land in the top slab. Businesses collect GST at each stage of the supply chain and remit it monthly or quarterly.
Registration is not automatic. If you sell goods, you must register once your annual aggregate turnover exceeds ₹40 lakh in most states, or ₹20 lakh in special category states like those in the northeast. For service providers, the thresholds are ₹20 lakh and ₹10 lakh. Some businesses must register regardless of turnover, including interstate suppliers, non-resident taxable persons, and anyone required to collect tax under the reverse charge mechanism.
Customs duty is separate. It applies to goods imported into or exported from India under the Customs Act of 1962, with rates keyed to the classification of the item in India’s tariff schedule. Customs authorities collect it at the border rather than through the supply chain.4India Code. The Customs Act, 1962
Who Owes Indian Tax
Your Indian tax obligation turns on residency, which is set by Section 6 of the Income Tax Act. You’re a resident if you spent 182 days or more in India during the financial year. A secondary test also captures you if you were present for at least 60 days in the current year and at least 365 days across the preceding four years.5Indian Kanoon. Section 6 in The Income Tax Act, 1961
Residents pay tax on worldwide income. Non-residents pay tax only on income earned or received in India. A middle category, Resident but Not Ordinarily Resident, applies to people who meet the residency test but haven’t been consistently present in India in earlier years. RNOR taxpayers pay Indian tax on Indian income and any foreign income connected to an Indian business; other foreign income stays exempt.
A 2020 rule can catch Indian citizens living abroad who aren’t taxed anywhere. Under Section 6(1A), if you’re an Indian citizen, your Indian-source income exceeds ₹15 lakh, and you aren’t liable to tax in any other country based on domicile or residency, India deems you a resident. Anyone caught by this rule is classified as RNOR rather than a full resident, so the reach is narrower than it first sounds.
Capital Gains
Capital gains are taxed separately from ordinary income, with rates depending on how long you held the asset. For listed equity shares and equity-oriented mutual funds, long-term gains (held over 12 months) above ₹1.25 lakh in a financial year are taxed at 12.5%. Short-term gains on these assets face 20% when securities transaction tax has been paid on the sale.
The “long-term” threshold varies by asset. Listed shares need 12 months, unlisted shares need 24 months, and real estate needs 24 months. Long-term gains on other assets are generally taxed at 12.5% plus applicable surcharge and cess. Misreading the holding period is a common and expensive mistake.
Deductions Under the Old Regime
The old regime allows deductions that can meaningfully cut your taxable income. Most of these disappear under the new regime, which is why the choice between the two matters so much.
- Section 80C, up to ₹1.5 lakh: covers Public Provident Fund contributions, Equity Linked Savings Schemes, National Savings Certificates, life insurance premiums, tuition fees for children, and principal repayment on home loans.
- Section 80D, up to ₹25,000: health insurance premiums for you and your family, with an additional ₹50,000 available if you pay premiums for senior citizen parents.
- Section 24(b), up to ₹2 lakh: interest paid on a home loan for a self-occupied property. Rental properties have no cap on the interest deduction itself, though the overall loss from house property that can be set off against other income is limited.
Under the new regime, the main giveback is the higher ₹75,000 standard deduction for salaried individuals. If your eligible old-regime deductions don’t add up to enough to beat the new regime’s wider slabs and lower rates, the new regime wins.
Professional Tax
Several states also levy a professional tax on salaried employees, self-employed professionals, and traders. This is state-level, not central, and rates vary. Article 276 of the Constitution caps professional tax at ₹2,500 per person per year.6Constitution of India. Article 276 – Taxes on Professions, Trades, Callings and Employments
Monthly deductions typically run from zero for low-income earners to around ₹200, with exact slabs set by each state. Employers deduct professional tax from salaries and pay it to the state. Not every state imposes it, but where it applies, you can deduct the amount from your taxable income on your central return.
Filing Deadlines and Late Fees
Deadlines depend on your category. For FY ending March 31, 2026 (Assessment Year 2026–27):
- Salaried individuals: July 31, 2026
- Non-audit business or profession cases: August 31, 2026
- Audit cases: October 31, 2026
- Transfer pricing cases: November 30, 2026
- Belated returns: December 31, 2026
Missing the deadline triggers two separate consequences. Section 234F imposes a flat late fee of ₹5,000 if your total income exceeds ₹5 lakh, or ₹1,000 at or below that threshold. No late fee applies if your income is below the basic exemption limit. Section 234A then charges interest at 1% per month, or part of a month, on any unpaid tax from the due date until you file. On a large balance, that compounds quickly.
You can still file a belated return by December 31 of the assessment year, but you’ll pay the Section 234F fee and Section 234A interest, and you lose certain benefits like carrying forward losses from the year.
Penalties for Under-Reporting and Evasion
India separates honest mistakes from deliberate evasion. Section 270A of the Income Tax Act imposes a penalty of 50% of the tax due on under-reported income. If the department finds you actively misreported your financial data, the penalty rises to 200% of the tax due.
Willful evasion carries criminal exposure under Section 276C. If the amount you tried to evade exceeds ₹25 lakh, you face rigorous imprisonment of six months to seven years plus a fine. For lower amounts, imprisonment runs from three months to two years. The Income Tax Department pursues prosecution in serious cases, and courts have upheld convictions under these provisions.2India Code. The Income-tax Act, 1961
Filing Basics: PAN and Aadhaar
Before you can file, you need a Permanent Account Number linked to your Aadhaar card. An unlinked PAN becomes inoperative, which blocks refunds and causes tax deducted from your income to be withheld at higher rates.7Income Tax Department. Link Aadhaar FAQ
Salaried filers work from Form 16, issued by the employer, which shows total salary paid and tax deducted at source during the year. Form 26AS and the Annual Information Statement give you a consolidated record of all taxes credited against your PAN by every entity that deducted or collected tax on your behalf. Cross-checking these against your own records catches problems before the department raises them.
The right ITR form depends on your income profile. ITR-1 works for salaried individuals with income up to ₹50 lakh, one house property, and no business income. ITR-4 is for small businesses and professionals using the presumptive taxation scheme. More complex situations require ITR-2 or ITR-3.8Income Tax Department. File ITR-4 (Sugam) Online FAQs
If You’re Taxed in Both the US and India
A Double Taxation Avoidance Agreement between the two countries prevents the same income from being taxed twice. The treaty lets US citizens and residents claim a credit against their US tax liability for income tax paid to India.9IRS. Convention Between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation
US taxpayers claim the credit on Form 1116 (Foreign Tax Credit), reporting the taxes paid to India and the category of income. The credit is capped at the amount of US tax that would otherwise be due on the foreign-source income, so it reduces your US bill but doesn’t produce a refund beyond what you owe.10IRS. Instructions for Form 1116 (2025)
On the Indian side, claiming DTAA benefits requires a Tax Residency Certificate from the tax authority of your country of residence. If the TRC doesn’t carry all the details Indian authorities require, you also submit Form 10F electronically through the e-filing portal. Getting those documents in place before you file keeps the DTAA claim from stalling.