IndiaTax Obligations Detailed

In India, employers have various payroll tax obligations, including withholding income tax, contributing to social security schemes, and complying with other statutory requirements.

Income Tax (TDS)

Employers are responsible for deducting Tax Deducted at Source (TDS) from employees' salaries based on their estimated annual income. India has two tax regimes: the old regime and the new regime (NPTR). The new regime has lower tax rates but fewer exemptions. Tax rates range from 0% (for income up to ₹250,000 in the old regime and ₹300,000 in the new regime) to 30%. TDS must be deposited by the 7th of the following month.

Provident Fund (PF)

The Employees' Provident Fund (EPF) is a mandatory retirement savings scheme. Both employers and employees contribute. The employee contributes 12% of their basic salary plus dearness allowance. The employer's contribution is also generally 12% but may vary.

Employee State Insurance (ESI)

Employees earning up to ₹21,000 per month and working in organizations with a certain number of employees are covered under the ESI scheme. The employer contributes 4.75%, and the employee contributes 1.75%. The exact employee threshold (10-20 employees) varies by state.

Professional Tax

Professional tax is a state-level tax levied on individuals earning a salary or practicing a profession. The rates and slabs vary by state. Employers must deduct this tax from employees' salaries. Payment deadlines are quarterly, generally by the 15th of the month following the quarter end. For companies with more than 20 employees, payment is due within 15 days of the month's end.

Tax Filing and Compliance

Employers must file various returns related to TDS, PF, ESI, and professional tax. The due dates vary depending on the specific tax and the number of employees. Electronic filing is mandatory for most tax returns. Companies should maintain accurate records and ensure timely compliance with all tax regulations. Foreign companies must comply with additional regulations, including obtaining a Permanent Account Number (PAN) and a Digital Signature Certificate (DSC). They are required to submit Form 10F electronically.

Other Considerations

• ESOPs: Employee Stock Ownership Plans (ESOPs) are taxed at two points: upon exercise (as salary income) and upon sale (as capital gains).
• Corporate Income Tax: Companies must pay advance tax in installments and file their annual corporate income tax return. The due dates for advance tax are generally the 15th of June, September, December, and March. The final tax return is due by October 31st (or November 30th if transfer pricing rules apply).
• Digitalization: Tax authorities are increasing the use of digital tools and data analysis, leading to more frequent automated audits. Companies must have robust accounting systems to ensure compliance.

This information is current as of February 5, 2025 and may be subject to change.

Employee tax deductions in India are determined by the chosen tax regime: the Old Regime or the New Regime. Each offers different deductions and tax slabs, allowing employees to optimize their tax liability based on their income and financial planning.

Income Tax

• Tax Deducted at Source (TDS): Employers deduct income tax directly from employees' salaries based on their estimated annual income and applicable tax slabs.

Tax Regimes

• Old Tax Regime: Offers various deductions and exemptions, potentially lowering taxable income.
• New Tax Regime (NPTR): Offers reduced tax rates but eliminates certain deductions available in the Old Regime.

Deductions under the Old Regime

• Standard Deduction: A flat deduction of ₹50,000 from taxable salary income.
• House Rent Allowance (HRA): Deduction for rent paid, subject to specific conditions.
• Leave Travel Allowance (LTA): Deduction for travel expenses within India.
• Section 80C Deductions: Deductions up to ₹150,000 for investments in specified instruments like life insurance, PPF, and ELSS.
• Section 80D Deductions: Deductions for health insurance premiums.
• Other Deductions: Deductions for home loan interest, education loan interest, and donations to charitable organizations.

Deductions under the New Regime

• Standard Deduction: Increased to ₹75,000 from the previous ₹50,000.
• Section 80CCD(2) Deduction: Deduction for employer's contribution to the National Pension System (NPS) up to 14% of basic salary.

Provident Fund (PF)

• Employee's Contribution: 12% of the employee's basic salary is contributed to the EPF.
• Employer's Contribution: 12% of the employee's basic salary is contributed to the EPF. A portion of the employer's contribution goes towards Employees' Pension Scheme (EPS) and the rest towards the Provident Fund.

Professional Tax

• A state-level tax levied on salaried individuals, varying by state and profession. Deducted by employers and remitted to the respective state government.

Other Statutory Deductions

• ESI: Employee State Insurance, applicable to employees earning up to a certain threshold.
• LWF: Labour Welfare Fund, a state-specific deduction for employee welfare programs.

As of February 5, 2025, the new tax regime allows zero tax on incomes up to ₹12,75,000 for salaried taxpayers due to the increased standard deduction. This threshold considers the standard deduction of ₹75,000. The basic exemption limit under the new regime remains at ₹300,000. It is advisable to consult with a tax advisor or refer to the official Income Tax Department website for the latest updates and specific details, as tax laws are subject to change.

In India, the Goods and Services Tax (GST) is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services.

GST Rates and Slabs

GST rates in India are categorized into four slabs: 5%, 12%, 18%, and 28%. A cess is also levied on certain items like cars and aerated beverages in addition to the applicable GST rate. Luxury goods and services fall under the 28% slab. Most non-essential goods are taxed at either 12% or 18%, while essential goods like food staples have a 0% rate.

As of February 5, 2025, the following updates apply:

• A reduction in GST on fortified rice kernels to 5%.
• Full exemption of gene therapy from GST.
• Compensation cess reduction on merchant export supplies to 0.1%.
• Concessional 5% GST rate extension on food preparations meant for free distribution.
• An increase in GST on old and used vehicles to 18%, applied only to the supplier's margin.
• Clarification on GST rates for popcorn, ranging from 5%, 12%, to 18%.

Please be aware that GST rates and regulations are subject to change, and this information is current as of today's date.

GST Registration

Businesses must register for GST if their aggregate turnover exceeds a specified threshold. This threshold is INR 4 million for exclusive intra-state supply of goods and INR 2 million for most other supplies (INR 1 million for special category states in North East India such as Arunachal Pradesh, Meghalaya, and Sikkim). Voluntary registration is permitted for businesses below these thresholds. Those dealing exclusively in goods have a threshold of INR 4 million, those exclusively supplying services is INR 20 lakhs and INR 2 million for both. Registration is mandatory for certain supplies and suppliers regardless of turnover.

GST Returns and Payments

Registered businesses are generally required to file monthly GSTR-1, GSTR-2 and GSTR-3 returns and an annual GSTR-9 return for each state they operate in (Jammu and Kashmir have not implemented GST.) Those under the Composition Scheme file returns quarterly. The due date for GSTR-3B is typically the 20th of the following month, while GSTR-1 is due on the 11th (monthly) or 13th (quarterly filers) of the following month. GSTR-9, an annual return, is due by December 31st of the following financial year.

As of February 5, 2025, the payment of net GST is due on the 20th of the month following the reporting period, usually submitted with Form GSTR-3.

Exemptions from GST

Several goods and services are exempt from GST. These include essential items such as fresh fruits, vegetables, unprocessed food grains, and certain educational and healthcare materials. Services such as healthcare, non-AC public transport, educational services, certain religious services, and funeral services are also exempt. Zero-rated supplies, primarily exports and supplies to Special Economic Zones (SEZs), attract 0% GST.

Additional Compliance Requirements

From 2025, Multi-Factor Authentication (MFA) is mandatory for GST portal access. The implementation schedule is staggered based on the taxpayer's Aggregate Annual Turnover (AATO):

• From January 1, 2025: MFA for Taxpayers with AATO above INR 200 Million

• From February 1, 2025: MFA for Taxpayers with AATO exceeding INR 50 Million

• From April 1, 2025: MFA Becomes Mandatory for All Taxpayers

Furthermore, restrictions on E-Way Bill (EWB) generation are also being implemented to prevent tax evasion and enhance the tracking of regulated goods.

India offers a range of tax incentives to stimulate economic activity and investment as of February 5, 2025. These incentives aim to benefit various sectors, from startups and MSMEs to large corporations and specific industries. Please be aware that tax laws are subject to change, and this overview is current as of today's date.

Corporate Tax Incentives

• Concessional Corporate Tax Rate: Domestic companies can opt for a 22% corporate income tax (CIT) rate, while new domestic manufacturing companies can benefit from a 15% rate. However, certain conditions must be met to qualify for this concessional regime, and companies opting for this rate cannot avail of specific other tax incentives or deductions.
• Tax Incentives for Capital Expenditure: A 100% deduction on capital expenditure is allowed in the year commercial operations commence for specific businesses. These include setting up and operating cold chain facilities, warehousing for agricultural produce, inland container depots, freight stations, and sugar warehousing, along with beekeeping and honey/beeswax production.

Incentives for Startups

• Tax Holiday for Startups: Eligible startups incorporated before April 1, 2030, can avail of a tax holiday. This means a 100% tax rebate on profits for three years within a block of ten years. This benefit is not available if the company's annual turnover exceeds ₹1 billion. Startups are also exempt from long-term capital gains tax. Additionally, investments in eligible startups above fair market value may be exempt from tax.

Incentives for MSMEs

• Reduced Tax Rates: MSMEs benefit from reduced tax rates. Domestic companies with turnovers under ₹400 crore are subject to a concessional tax rate of 25%.
• Presumptive Taxation Scheme: Under Section 44AD of the Income Tax Act, eligible MSMEs (individuals, HUFs, and partnership firms excluding LLPs) with turnovers up to ₹3 crore can declare a presumptive income (8% of turnover, 6% for digital transactions), simplifying tax filing.
• Tax Holidays: MSMEs can benefit from a five-year tax exemption starting from the year production begins. Eligible startups under Section 80-IAC can also claim profit-linked tax holidays for three years within ten years of incorporation.
• Depreciation Benefits: MSMEs can claim deductions on assets like machinery over their useful life. Accelerated depreciation allows higher deductions in the initial years, freeing up capital for reinvestment.
• GST Benefits: Under the Goods and Services Tax (GST) regime, businesses with annual turnovers up to ₹40 lakh (goods) and ₹20 lakh (services) are exempt from GST registration. MSMEs can also opt for the Composition Scheme with reduced GST rates (1-6%).

Other Tax Incentives and Exemptions

• Tax Exemptions for Individuals: Various tax exemptions are available for individuals, including exemptions for certain allowances like HRA and LTA, agricultural income, interest earned on certain bonds and dividends from specified mutual funds.
• Section 80C Deductions: Individuals can claim deductions of up to ₹1.5 lakh under Section 80C for investments in specified instruments like PPF, ELSS, NSC, and others.
• Section 80D Deductions: Deductions can be claimed on medical insurance premiums, over and above the benefits under Section 80C.
• Tax Benefits on Home Loans: Taxpayers can claim deductions under Section 80EE and Section 24 for home loan interest payments.
• Tax Relief for Senior Citizens: The TDS threshold on interest earned by senior citizens has been raised from ₹50,000 to ₹1 lakh.

Special Economic Zones (SEZs)

SEZs offer various tax incentives to promote exports and FDI, including customs and excise duty exemptions, tax holidays for developers, and exemptions from MAT and capital gains tax under specific conditions.

General Tax Updates and Measures

• Increased TDS Thresholds: TDS thresholds have been raised for various categories. The TDS limit for interest earned is ₹50,000 (₹100,000 for senior citizens), for dividends from mutual funds is ₹10,000, and for rent is ₹600,000.
• Income Tax Rebate: The income tax rebate limit under Section 87A has been increased, offering zero tax liability for many taxpayers. The basic exemption limit has been raised as well, along with a restructuring of other tax slabs.

This overview provides a summary of various tax incentives in India. Consulting with a tax advisor is crucial for personalized guidance based on specific circumstances.