Paying income tax in India? Read this

Keeping on top of your tax filing and payment is crucial to make sure you’re on the right side of the law. This can become a little complex if you’re living and working overseas, even for part of the tax year. Where you owe tax will depend on your tax residency status, the sort of income you’re receiving, and your personal situation. You might need to pay tax in India even if you’re not an Indian citizen, based on your residency and income sources.

If you’re unsure about whether or not you need to complete an income tax return in India, or pay Indian income tax, you might need to get professional advice. It’s not something you want to get wrong, after all.

This guide gives an overview to help you research income tax in India, including the Indian income tax rates, efiling process, and a few handy Indian income tax calculator tools to get you started. We’ll also review Wise as a smart way to transfer money to India for a low fee with no markup added to the Google exchange rate. This can save you money on bank fees when settling up your Indian income tax bill.

What is the income tax rate in India?

India has a progressive income tax system. This means that there is a tax free amount open to all taxpayers, with variable tax rates after that based on your income level.

The income tax rate in India for the 2019/20 assessment year - which actually looks back on an individual’s earnings for the previous year 2018/19 - is as follows:¹

How do I pay income tax in India?

The easiest way to pay tax in India is online. If you can’t do this, you can also pay via a designated bank branch, by filling in the Challan 280 form and presenting it along with your payment.

Paying income taxes online - is it possible?

Efiling income tax in India is actually pretty straightforward to do. You can pay your income tax online if you have an active PAN (Permanent Account Number) or TAN (Tax Deduction and Collection Account Number).

You’ll need to visit the Tax Information Network (TIN) website, and fill in the form known as Challan 280 or ITNS 280. Once you’ve found the right documents, you can follow the prompts on screen to confirm the tax you owe, log into your online banking, and pay right away.

Where can I get income tax forms?

To learn more about paying your taxes in India, make an online payment, or download forms to pay in person at a bank branch, visit the TIN website.

Who has to pay income tax in India?

Whether or not you need to pay tax in India will depend to a large extent on your residency status for tax purposes. It’s worth noting that residency is notoriously complex, and you’re advised to take professional guidance if you have any doubt as to your tax status, to ensure you don’t make any errors in your tax filing and payments.

The residence status options are as follows:³

• Resident and Ordinarily Resident taxpayers (ROR)
• Non Resident taxpayers (NR)
• Not Ordinarily Resident taxpayers (NOR)

To be considered a Resident and Ordinarily Resident taxpayer, you’ll have been in India for over 182 days in the relevant tax year, or 60 days in the current tax year, and a total of 365 days over the preceding 4 years. If you’re considered to be ROR, you’ll usually have to pay tax in India on your worldwide income.

If you don’t meet these criteria, chances are that you’ll be classified as a Non Resident and need to pay tax in India on money earned in India only. The final category - NOR - also pays tax only on Indian sourced income. This applies to people who would usually qualify as resident, but have not been tax resident in India for 9 out of the preceding 10 tax years, or who have only been in India for 729 days or less over the preceding 7 years.

Do you need to pay income tax in India? Wise can save you money on your international payments

If you’re paying tax in India, and need to make an international payment to cover your costs, you’ll want to make sure that your transfer is not subject to high fees and a poor exchange rate.

Wise is a great option to get international payments which use the mid market exchange rate, with only a low transparent fee to pay. You can arrange a payment online in just a few minutes, and it’ll be paid conveniently and securely.

If you’re making frequent international payments you might benefit even more if you get a multi-currency borderless account from Wise. This account lets you send and receive low cost international payments which always use the exchange rate you’ll see on Google, as well as holding over 40 currencies in the same account. You can receive payments for free in major currencies like US, Australian, New Zealand dollars, euros and British pounds, just like a local, with no fee to open or operate the account. See how going borderless can help you save money on your international transfers, today.

What are allowable deductions from gross income in India?

There are some 19 different categories of allowable deductions from gross income tax in India in the 2019/20 tax year. Each category has a deductible amount of INR150,000. The key categories are as follows - get the full listing online, on the KPMG website.

• Life insurance premiums paid
• National savings Certificate contributions and interest
• Pension contributions
• Repayment of a home loan
• Stamp duty for a home purchase
• Tuition fees
• Various deposit scheme and bond subscriptions

How much income is tax free in India?

In the 2019/20 assessment year, the first INR250,000 is tax free for most people. This amount rises to INR300,000 for individuals aged over 60, and INR500,000 for those over 80.⁴

India income tax calculator: Some options

If you’re unsure about what your Indian income tax liabilities might be, you should take professional guidance to make sure you don’t pay too much, or underpay and find yourself subject to fines later. However, you can make a start on calculating the tax you owe, using one of the tax tools available online from the government or reputable personal finance sites. Here are a couple of options to consider:

• Government of India Income Tax department tax calculator tool
• The Economic Times income tax calculator tool
• Money Control income tax calculator tool

Although working out whether or not you need to pay tax in India may take a little research, making your payment should be fairly straightforward. Don’t forget to look for the best value ways to transfer money into India to cover your tax costs, so you’re not paying more than you have to. Check out Wise to see if you can save time and money.

Sources used in the article:

1. Income tax in India for the year 2019/2020
2. How to pay income tax in India
3. India residence status options
4. How much income tax is free in India