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Direct taxes are those that are paid to the government directly by individuals or other entities. Income tax and wealth tax are examples of direct taxes in India. These taxes are nontransferable and are determined by the taxpayer's wealth or income. Income tax and corporate tax are the two primary types of direct taxes. Income tax is imposed on the earnings of individuals, Hindu Undivided Families, and other taxpayers (apart from corporations). The profits that firms make from their operations are subject to corporate taxation.
An individual's whole income for a given fiscal year is used to compute income tax. The following sources of income are subject to income tax:
A person who is not an individual or a HUF, such as a partnership firm, company, etc., may have any one of the following residence statuses, according to the Income-tax Law:
Resident
Non-resident
The Income-tax Law's criteria must be applied annually to ascertain the taxpayer's residence status, which is not set. As a result, the taxpayer might qualify as a resident for one year and a non-resident for another, or the other way around.
An organization resides in India if:
It's Indian, or the major decisions that affect it are made there.
As with Assessment Year 2017–18, this rule is in effect. Final guidelines have been released by the CBDT for determining a foreign company's POEM.
A test called Active Business Outside India (ABOI) is part of the rules. If a company's passive income is less than 50% of its total income, it has an ABOI. It must also adhere to certain payroll, employment, and asset requirements.
A company with an ABOI is presumed to make important decisions outside of India if the majority of its board meetings take place outside of the country.
If not, the location of the important decision-makers must be determined.
Nonetheless, businesses with yearly turnover or gross sales of INR 50 crores or less are free from the POEM standards, per CIRCULAR NO.8, DATED 23-2-2017.
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