Taxes and Tax Schemes in India | What You Need to Know in 2025

India, a vibrant and rapidly growing economic giant, operates a sophisticated and complex tax system that reflects its diverse and dynamic economic landscape. As the world's largest democracy and one of the fastest-growing major economies, India has been continuously evolving its tax framework to support economic growth, attract foreign investment, and promote social welfare.

The Indian economy spans multiple sectors, including information technology, manufacturing, agriculture, services, pharmaceuticals, and emerging technologies. The tax system is designed to balance revenue generation, economic development, and social equity, with recent reforms focusing on digitalization, simplification, and increased transparency.

The expat community in India continues to grow, particularly in technology, research, manufacturing, and service sectors, drawn by the country's economic opportunities and innovative business environment.

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Indian Income Tax

India employs a progressive personal income tax system with multiple tax brackets:

Tax Rates for Resident Individuals (as of 2025):

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Social Security Contributions:

• Employees' Provident Fund (EPF):
  • Employee contribution: 12% of basic salary
  • Employer contribution: 12% of basic salary
• Employees' State Insurance (ESI): Applicable for lower-income employees
• Professional Tax: Varies by state

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If you want to have a better understanding of the taxes you should pay on personal income in India, you can use the personal tax calculator in the Taxation section of the India page.

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Indian Tax on Overseas Income

India's approach to foreign income is based on residential status:

1. Resident Individuals: Taxed on worldwide income
2. Non-Residents: Taxed only on India-sourced income

Residency Determination:

• Resident: Staying in India for 182 days or more in a financial year
• Resident but Not Ordinarily Resident (RNOR): Special provisions for returning Indians and certain expatriates
• Non-Resident: Less than 182 days in India during the financial year

Special provisions include:

• Double Taxation Avoidance Agreements (DTAA)
• Foreign Tax Credit mechanism

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Indian Tax on Investments

Investment income receives specific tax treatment:

• Dividends:
  • Taxed at 10% for domestic companies
  • Specific rates for foreign companies and individuals
• Capital Gains:
  • Short-term: Taxed at applicable income tax rates
  • Long-term: Taxed at 20% with indexation benefits
• Interest Income:
  • Bank deposits taxed at marginal income tax rates
  • Specific tax treatments for various investment instruments
• Rental Income: Taxed at progressive rates with deductions
• Cryptocurrency: Taxed at 30% with no deductions

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Corporate Taxation

Corporate tax structure is designed to support business growth:

• Corporate Tax Rate:
  • Domestic Companies: 25.17%
  • New Manufacturing Companies: 15%
• Minimum Alternate Tax (MAT): 15% for companies opting for lower tax rates
• Goods and Services Tax (GST):
  • Multiple slabs (0%, 5%, 12%, 18%, 28%)
• Dividend Distribution Tax: Abolished for shareholders
• Startup and Small Business Incentives

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Special Tax Regimes

India offers several specialized tax arrangements:

1. Special Economic Zones (SEZ): Tax holidays and benefits
2. Research and Development Incentives
3. Export-Oriented Unit Schemes
4. Startup India Initiative
5. Renewable Energy Investment Incentives

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Regional Comparison

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Tax Planning for India

Effective tax management requires a strategic approach:

1. Residency Status Optimization
2. Investment Strategy Alignment
3. Comprehensive Documentation
4. Professional Consultation

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