In the simplest of words, tax is a mandatory financial contribution imposed by the government to fund public services and national development. In India, tax responsibilities are clearly divided among the Central and State Governments, and local bodies. The Indian Constitution gives Central and State Governments the authority to levy tax. Here is breakdown of the taxation structure in India to help you with tax planning in the future:**
Types of Taxes in India**
The Indian tax system is made up of two types of taxes: Direct Taxes and Indirect Taxes.
1. Direct Taxes
These taxes are imposed directly on individuals and corporations, meaning the entity earning the income is responsible for payment. The burden cannot be transferred. Key types of direct taxes include:
a)Income Tax
Income tax applies to individuals, Hindu Undivided Families (HUFs), and entities other than companies. The income tax structure in India is progressive, meaning the tax rate increases as income rises. Personal income tax is levied by the Central Government and is administered by the Central Board of Direct Taxes under the Ministry of Finance. The tax structure in India for personal taxation allows individual taxpayers to choose between two income tax regimes: the Old Tax Regime and the New Tax Regime.
Old Tax Regime
Income Range (₹)
| Tax Rate
|
Up to 2,50,000
| Nil
|
2,50,001 to 5,00,000
| 5%
|
5,00,001 to 10,00,000
| 20%
|
Above 10,00,000
| 30%
|
Key Features
Allows various exemptions and deductions with tax saving investment options under:
- Section 80C: Up to ₹1.5 lakh for investments in life insurance, PPF, EPF, ELSS, etc.
- Section 80D: Tax benefits on health insurance premiums
- Section 24(b): Interest on home loans deductible up to ₹2 lakh
- HRA, LTA, and other allowances reduce taxable income
New Tax Regime
FY 2024-25
| FY 2025-26
|
Income (₹)
| Tax Rate
| Income (₹)
| Tax Rate
|
Up to 3,00,000
| NIL
| Up to 4,00,000
| NIL
|
3,00,001 to 7,00,000
| 5%
| 4,00,001 to 8,00,000
| 5%
|
7,00,001 to 10,00,000
| 10%
| 8,00,001 to 12,00,000
| 10%
|
10,00,001 to 12,00,000
| 15%
| 12,00,001 to 16,00,000
| 15%
|
12,00,001 to 15,00,000
| 20%
| 16,00,001 to 20,00,000
| 20%
|
Above 15,00,000
| 30%
| 20,00,001 to 24,00,000
| 25%
|
| | | Above 24,00,000
| 30%
|
Key Features
- As per a rebate introduced in the Union Budget of 2025, individuals earning up to ₹12,00,000 pay no tax under Section 87A.
- No exemptions or deductions for tax saving investments such as life insurance premiums, PPF, ELSS, or home loan interest.
Old vs New Tax Regime
Choosing between the old and new tax regimes depends on your financial approach. If you invest in tax saving investment options like life insurance, mutual funds, or provident funds, the old regime may be more beneficial as it allows deductions that reduce taxable income.
However, if you prefer a simpler structure with lower tax rates and don’t want to track multiple deductions, the new regime could be a better choice. You can use an online income tax calculator to compute your tax liability and make the choice based on your unique financial requirements.
b)Corporate Tax
Businesses operating in India are subject to corporate taxation, with different rates based on turnover and type of company.
Domestic Companies
- Companies with an annual turnover of up to ₹400 crore: 25%
- Companies with an annual turnover exceeding ₹400 crore: 30%
- Companies opting for concessional tax rates under special provisions: 22% (without exemptions) or 15% (for new manufacturing units incorporated after October 2019)
Foreign Companies
Standard tax rate of 35%
Note: Surcharges and cess apply additionally, based on the company’s income and tax category.
c)Capital Gains Tax
Capital gains tax applies when profits are made from selling assets, such as property, stocks, or gold.
-Short-term capital gains (STCG)
– If an asset is sold within a short-holding period, tax is levied at 15% (for stocks) or the individual’s income tax rate (for other assets).
-Long-term capital gains (LTCG)
– If held beyond the specified period, tax is 10% (for equity gains exceeding ₹1 lakh) or 20% (for other assets with indexation benefits).
2. Indirect Taxes
Unlike direct taxes, indirect taxes are imposed on goods and services, with the burden passed on to consumers.
a)Goods and Services Tax (GST)
GST, introduced in 2017, replaced multiple State and Central levies under the tax structure in India to create a unified system. It applies to the sale of goods and services, with different slabs depending on the category:
- 5% – Essential goods like food grains
- 12% – Packaged food, electronic appliances
- 18% – Most consumer goods and services, including restaurants
- 28% – Luxury products like automobiles and high-end electronics
Note: GST compliance requires businesses to register, file returns, and pay taxes periodically.
b)Customs Duty and Excise Duty
- Customs duty applies to imported goods, ensuring protection for domestic industries.
- Excise duty was previously levied on manufactured goods but has largely been replaced by GST, except for specific products like fuel and alcohol.
Key Compliance Requirements**
Here are some major tax compliances under the tax structure in India to help you with tax planning:
Income Tax Return (ITR) Filing:
- Due by July 31st for individuals
- Due by October 31st for businesses requiring audits
GST Returns:
- Monthly or quarterly, depending on turnover
Tax Deducted at Source (TDS):
- Employers and businesses must deduct and deposit TDS, filing quarterly reports
The taxation structure in India, though complex, is designed to ensure revenue generation while promoting economic growth. With continuous reforms and digital advancements, compliance is becoming easier. Whether you’re an individual taxpayer, a small business owner, or a corporation, staying informed and compliant with tax regulations is essential for long-term financial stability.**
**Tax exemptions are as per applicable tax laws from time to time.
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