India's Tax Framework and System in 2025

India's tax structure is a dual-model system shared between the central government and individual state governments, with approximately 65% of total tax revenue collected by the federal authority and the remaining 35% managed by state and local administrations. This division supports fiscal federalism while ensuring coordinated economic governance across sectors.

Taxing Authorities and Key Tax Categories

• Central Government: Levies direct taxes such as corporate income tax, personal income tax, and wealth tax. It also administers indirect taxes including Goods and Services Tax (GST), customs duties, and excise levies.
• State Governments: Responsible for collecting state-level GST components, stamp duty, land revenue, and continue applying value-added tax (VAT) or sales tax on goods outside the GST framework.
• Local Municipal Bodies: Impose property tax, entry tax on goods entering city limits, and service charges for utilities like water supply and sewage management.

Filing Procedures and Compliance Calendar

The financial and tax year in India runs from April 1 to March 31. Most taxpayers must file annual returns by July 31 following the assessment year, though deadlines may vary based on taxpayer type. Corporate entities are required to make quarterly advance tax payments, while salaried individuals typically have tax deducted at source (TDS) by employers, streamlining compliance.

Key Taxes and Applicable Rates in 2025

Corporate Income Tax

• Domestic Companies: Effective tax rates range between 15% and 30%, depending on turnover, business nature, and eligibility under incentives such as those for startups or manufacturing units.
• Foreign Entities: Subject to a 40% rate on general income earned in India; royalty payments or fees for technical services face a higher withholding tax of 50%, reflecting stricter controls on outbound remittances.

Capital Gains Taxation

Long-term capital gains from tangible assets like real estate are taxed at 20% with indexation benefits. For listed securities, equity shares, and mutual funds held beyond 12 months, the rate is 10% without indexation. Short-term gains—on assets held less than 36 months (or 12 months for equities)—are taxed at either slab rates applicable to individuals or a flat 15%, whichever applies.

Personal Income Tax Structure

Taxable income includes earnings from employment, house property, business or profession, capital gains, and other sources. As of 2025, the basic exemption threshold remains at ₹250,000 per annum. Beyond this, progressive slabs apply, reaching up to 30% for high-income earners, excluding surcharges and cesses that can increase the effective top rate to over 42%.

Goods and Services Tax (GST)

GST operates through four primary components: Central GST (CGST), State GST (SGST), Integrated GST (IGST) for inter-state transactions, and Union Territory GST (UTGST). Standard tax brackets include 5%, 12%, 18%, and 28%, applied according to commodity classification. Essential items attract lower or zero rates, while luxury and sin goods face additional cesses on top of the base rate.

Special Economic Zones (SEZs): Incentives and Reforms

Regulatory Environment for SEZs

Units operating within designated Special Economic Zones benefit from multiple fiscal advantages, including full exemption from customs duties on imports, income tax holidays on export profits, liberal foreign direct investment (FDI) norms, and relaxed foreign exchange regulations under the Foreign Exchange Management Act (FEMA).

Recent Policy Enhancements

In 2025, the Indian government revised minimum land requirements for new SEZ projects, making it easier for smaller developers to participate. Additional reforms include enhanced capital investment subsidies, extended tax breaks for green technology zones, and integration with national digital infrastructure initiatives to boost logistics efficiency.

Overview of India’s SEZ Landscape

As of early 2023, India had 270 operational SEZs, primarily focused on export-oriented industries such as IT/ITeS, pharmaceuticals, textiles, and electronics manufacturing. These zones are generally specialized rather than integrated urban developments, lacking broad socio-economic planning mandates but serving as critical engines for job creation and foreign exchange earnings. With growing emphasis on sustainability, several new SEZs are being developed as eco-industrial parks aligned with net-zero goals. For global businesses exploring offshore operations, SailGlobal offers tailored advisory services on compliance, setup, and cross-border taxation strategies in India’s dynamic SEZ ecosystem.