Taxation of individuals in India is primarily based on their residential status in the relevant tax year. The residential status of individuals is determined independently for each tax year and is ascertained on the basis of their physical presence in India during the relevant tax year and past years. See the Residence section for more information.

The following types of residential status are envisaged for an individual:

• Resident in India, which is further divided into the following two categories:
  • Resident and ordinarily resident (ROR).
  • Resident but not ordinarily resident (RNOR).
• Non-resident in India (NR).

Under Indian tax laws, the scope of taxation differs as per the residential status of an individual:

• RORs are subject to tax in India on their worldwide income, wherever received.
• RNORs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India, or is from a business controlled in or a profession set up in India.
• NRs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise, or is received or deemed to be received in India.

RNOR and NR individuals are not subject to tax in respect to their income earned and received outside of India.

Effective 1 April 2023, the tax rates under the ATPR, devoid of any deductions or exemptions, have been revised as follows:

Under the APTR, the taxpayer is not eligible to claim certain exemptions/deductions/set-off of losses/carry forward of losses, such as:

• Leave travel allowance.
• House rent allowance.
• Allowance under which incomes that do not form part of the total income of the Income-tax Act, except certain prescribed allowances.
• Exemption of free food and beverages through vouchers provided by the employer.
• Deduction for professional tax.
• Deduction of interest payment on housing loans for self-occupied property and restrictions on set-off of loss from let out property.
• All Chapter VIA deductions of the Income-tax Act available for expenditure by way of employee’s contribution to provident fund, children tuition fees, insurance premium, donations, medical premium, etc., except employer’s contribution to notified pension scheme, such as National Pension Scheme.

Note that this is not an exhaustive list and just an overview of certain deduction/exemptions that are not allowed in the APTR.

The APTR option can be exercised for every financial year (FY) if the taxpayer has no business income. If the taxpayer has business income, the option, once exercised, will be mandatory for all subsequent financial years as well, with only a one-time change being permitted later.

The Revenue Department has clarified that the employer will seek information from each of its employees having salary income regarding their intended tax regime, and each such employee will intimate the same to the employer. Upon intimation, the employer will compute the total income and deduct tax at source thereon according to the option exercised.

If intimation is not made by the employee, it will be presumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the alternate tax regime.

It is also clarified that the employee can elect to change the option of the tax regime at the time of filing one's India tax return.