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Indirect Tax Laws

Notes  Service Tax
 Securities Transaction Tax
 Taxes Levied by State Governments and Local Bodies

 Sales Tax/VAT
 Other Taxes

Direct Taxes

Taxes on Corporate Income

Companies residents in India are taxed on their worldwide income arising from all sources in
accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially
taxed on the income earned from a business connection in India or from other Indian sources. A
corporation is deemed to be resident in India if it is incorporated in India or if its control and
management is situated entirely in India.
Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge. Foreign
corporations have a basic tax rate of 40% and a 2.5% surcharge. In addition, an education cess at
the rate of 2% on the tax payable is also charged. Corporates are subject to wealth tax at the rate
of 1%, if the net wealth exceeds 1.5 mn (appox. $ 33333).
Domestic corporations have to pay dividend distribution tax at the rate of 12.5%, however, such
dividends received are exempt in the hands of recipients.
Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and education
cess) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its
book profits.

Capital Gains Tax

Tax is payable on capital gains on sale of assets. Long-term Capital Gains Tax is charged if–

 Capital assets are held for more than three years and in case of shares, securities listed on
a recognized stock exchange in India, units of specified mutual funds, the period for
holding is one year.

 Long-term capital gains are taxed at a basic rate of 20%. However, long-term capital gains
from sale of equity shares or units of mutual funds are exempt from tax.
 Short-term capital gains are taxed at the normal corporate income tax rates. Short-term
capital gains arising on the transfer of equity shares or units of mutual funds are taxed at
a rate of 10%.

 Long-term and short-term capital losses are allowed to be carried forward for eight
consecutive years. Long-term capital losses may be offset against taxable long-term capital
gains and short-term capital losses may be offset against both long term and short-term
taxable capital gains.
 Personal income tax is levied by Central Government and is administered by Central
Board of Direct Taxes under Ministry of Finance in accordance with the provisions of the
Income Tax Act.

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