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Maternity Leave in India: 26 Weeks Paid Leave, Eligibility and Rules under the Code on Social Security

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A woman who has worked at least 80 days in the 12 months before her expected delivery date is entitled to paid maternity leave at the average daily wage of the three calendar months before she goes on leave.
  • Leave is 26 weeks (not more than 8 weeks before delivery) and 12 weeks for a woman who already has two or more surviving children.
  • Adoptive and commissioning mothers get 12 weeks from the day the child is handed over (child below three months).
  • The Maternity Benefit Act, 1961 stands repealed and its rules now sit in sections 59 to 72 of the Code on Social Security, 2020 (Chapter VI), in force from 21/11/2025.

For decades maternity leave was governed by the Maternity Benefit Act, 1961. From 21/11/2025 the Code on Social Security, 2020 came into force and its Chapter VI now carries the maternity benefit provisions. The headline entitlements did not change: 26 weeks of paid leave, job protection, a crèche and the option of working from home.

Who is eligible?

A woman who has worked for at least 80 days in the 12 months immediately before her expected date of delivery (section 60(2)). Days of lay-off and holidays with wages declared by law count towards the 80 days.

How much leave?

Situation Paid leave
First or second child 26 weeks (not more than 8 weeks before the expected delivery)
Woman with two or more surviving children 12 weeks (not more than 6 weeks before the expected delivery)
Tubectomy operation 2 weeks from the day of the operation (section 65(2))
Adoptive mother (child below three months) 12 weeks from the date the child is handed over
Commissioning mother 12 weeks from the date the child is handed over
Miscarriage or medical termination of pregnancy 6 weeks from the day of the miscarriage or termination

An employer cannot make a woman work during the six weeks immediately after delivery, miscarriage or termination.

What is paid?

Leave is paid at the average daily wage for the period of actual absence: the average of her wages for the days worked in the three calendar months before she goes on leave, subject to the minimum wage (section 60(1)). Every woman entitled to maternity benefit also gets a medical bonus of Rs 3,500, or the amount the Central Government notifies, if the employer does not provide pre-natal confinement and post-natal care free of charge (section 64).

Other rights

  • Job protection: it is unlawful to dismiss her, or to change her conditions of service to her disadvantage, because of absence under this Chapter. Dismissal during pregnancy does not take away the benefit, except for gross misconduct as prescribed. She can appeal within 60 days (section 68).
  • Extra leave for illness: up to one month more on proof of illness arising out of pregnancy, delivery, premature birth, miscarriage or termination (section 65(3)).
  • Nursing breaks: two breaks a day, in addition to the rest interval, until the child is 15 months old (section 66).
  • Work from home: where the nature of work allows, the employer may let her work from home after the leave, on terms agreed with her.
  • Crèche: an establishment with 50 or more employees (or the number prescribed) must provide a crèche within the prescribed distance, which may be shared with other establishments. The mother may make four visits a day, including her rest interval (section 67).
  • Light work: on her request, a pregnant woman cannot be given arduous work or work needing long hours of standing in the month before the last six weeks before delivery, nor during any part of those six weeks she does not take as leave (section 59).
  • Notice and payment: she gives written notice stating the date from which she will be absent. Failure to give notice does not take away the benefit. The amount for the period before delivery is paid in advance on proof of pregnancy, and the balance within 48 hours of proof of delivery (section 62).

Does it apply to every employer?

Under the First Schedule to the Code, Chapter VI applies to every factory, mine and plantation (including those of Government), to every shop or establishment in which ten or more employees are employed, or were employed on any day of the preceding twelve months, and to other shops or establishments notified by the appropriate Government.

What employers should do

  • Display an abstract of Chapter VI and the rules, in the local language, where women are employed (section 71).
  • Tell every woman in writing and electronically, when she is first appointed, about every benefit under the Chapter (section 67(2)).
  • Keep a record of days worked, lay-off and paid holidays for the 80 day test.
  • Make no deduction from wages for nursing breaks or because a pregnant woman is given lighter work (section 69).

Frequently asked questions

How many weeks of maternity leave is a woman entitled to?

26 weeks for the first two children, of which not more than 8 weeks can be taken before the expected delivery. For a third or later child it is 12 weeks.

Who is eligible?

A woman who has actually worked for at least 80 days in the 12 months immediately before her expected date of delivery.

How much is paid during maternity leave?

The average daily wage for the period of absence, which is worked out on the wages of the period before the leave begins.

What is the maternity leave for adoption?

12 weeks from the date the child is handed over, for a woman who lawfully adopts a child below three months and for a commissioning mother.

What leave is given for a miscarriage?

Six weeks of paid leave from the day of the miscarriage or medical termination of pregnancy, on proof.

Is a crèche compulsory?

An establishment with 50 or more employees must provide a crèche within the prescribed distance, and the mother may visit it four times a day, including the rest interval.

Does the Act apply to small establishments?

The maternity benefit chapter applies to establishments with 10 or more employees on any day of the previous 12 months, and to factories, mines and plantations as listed in the Code.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Section 80-IAC: Tax Exemption for Startups, Eligibility and Conditions

Posted on by CA Meet Dhrangadhariya

Last updated: 28 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Section 80-IAC gives an eligible startup a deduction of 100% of its business profits for any 3 consecutive years out of its first 10.
  • The startup must be a company or LLP incorporated on or after 01/04/2016 and before 01/04/2030, with an Inter-Ministerial Board certificate.
  • The turnover cap is ₹100 crore for FY 2025-26 and ₹300 crore from Tax Year 2026-27.
  • From Tax Year 2026-27 it is section 140 of the Income-tax Act, 2025, and the audit report is Form 32. It is not available if a company pays tax at 22% or 15%.

Section 80-IAC lets a certified startup pay no income tax on the profits of its eligible business for three years. It is one of the most useful tax benefits for young companies and LLPs. From Tax Year 2026-27 the provision is section 140 of the Income-tax Act, 2025. For FY 2025-26 (assessment year 2026-27) it is still section 80-IAC of the 1961 Act.

How much and for how long?

The deduction is 100% of the profits and gains derived from the eligible business. The startup can claim it for any three consecutive tax years, chosen by the startup, out of the ten years beginning with the year of incorporation. Choose the three years in which you expect profits.

Who is an eligible startup?

A company or limited liability partnership that:

  • is engaged in an eligible business, meaning innovation, development or improvement of products, processes or services, or a scalable business model with a high potential for employment generation or wealth creation;
  • is incorporated on or after 1 April 2016 and before 1 April 2030;
  • has total business turnover within the limit in the year of the claim: ₹100 crore for FY 2025-26 under the 1961 Act, and ₹300 crore from Tax Year 2026-27 under section 140 (the Finance Act, 2026 raised it); and
  • holds a certificate of eligible business from the Inter-Ministerial Board of Certification (IMBC).

A partnership firm or proprietorship cannot claim it. A private limited company and an LLP can.

Other conditions

  • The startup must not be formed by splitting up or reconstructing a business already in existence.
  • It must not be formed by transferring to the new business machinery or plant previously used for any purpose. Used plant and machinery up to 20% of the total value of machinery in the business does not break this rule, and imported machinery that was never used in India and never claimed depreciation is also not treated as previously used.
  • The eligible business is treated as the only source of income of the startup when working out the profits for the deduction.
  • If goods or services move between the eligible business and another business of the assessee at a price different from market value, the profits are worked out at market value.
  • A business discontinued because of flood, cyclone, earthquake, riot, accidental fire, explosion or enemy action and revived within three years of the end of that year is not treated as a reconstruction.
  • The accounts of the eligible business must be audited and the audit report furnished before the specified date. The report is Form 10CCB up to FY 2025-26 and Form 32 (Rule 66) under the Income-tax Rules, 2026.

Two steps to qualify

  1. DPIIT recognition. Register on the Startup India portal and get recognised as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT, formerly DIPP).
  2. IMBC certificate for tax benefits. Apply separately on the portal for the Inter-Ministerial Board of Certification, choosing the tax exemption option. Keep ready the constitution documents, financial statements, and a pitch deck or video. Recognition alone is not enough for section 80-IAC.

Tax regime

A company can claim section 80-IAC only if it pays tax under the normal provisions. The 22% and 15% regimes (sections 200 and 201 of the 2025 Act) allow only section 146 and section 148 from the deduction chapter, so a startup that takes the 22% rate loses this deduction. An LLP, taxed at the flat rate for LLPs, is not affected by that choice.

Do not forget MAT

Zero tax on profits does not always mean zero tax. A company taxed under the normal provisions can still face minimum alternate tax on its book profit, and the section 80-IAC deduction does not reduce book profit. Check the book profit position before assuming the startup will pay nothing.

Example

A private limited company was incorporated in April 2023 and holds the DPIIT and IMBC certificates. It makes a loss in its first two years and a profit of ₹40,00,000 from its eligible business in the third year. It can choose that year, and the next two, as its three years. In the profit year the deduction is ₹40,00,000, so its taxable business income is nil, subject to MAT.

Frequently asked questions

Who is an eligible startup under section 80-IAC?

A company or LLP engaged in an eligible business, incorporated on or after 01/04/2016 and before 01/04/2030, with turnover within the limit and a certificate of eligible business from the Inter-Ministerial Board of Certification.

How long is the deduction?

100% of profits from the eligible business for any 3 consecutive tax years, chosen by the startup out of the 10 years beginning with the year of incorporation.

What is the turnover limit?

₹100 crore under the 1961 Act (up to FY 2025-26) and ₹300 crore under section 140 of the 2025 Act from Tax Year 2026-27.

Is DPIIT recognition enough?

No. The Act asks for a certificate of eligible business from the Inter-Ministerial Board of Certification, which is a separate step from DPIIT recognition.

Can a company that pays tax at 22% claim it?

No. The 22% and 15% company regimes allow only additional employee cost (section 146) and inter-corporate dividends (section 148) from the deduction chapter.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

National Financial Reporting Authority (NFRA) under Section 132: Functions, Investigation Powers and Penalties on Auditors

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • The NFRA is the audit regulator set up under section 132 of the Companies Act, 2013. It recommends accounting and auditing standards, monitors compliance with them and oversees the quality of audit services.
  • It can investigate professional or other misconduct by chartered accountants and firms, with the powers of a civil court, and once it starts an investigation no other body can proceed on the same misconduct.
  • Penalty on proof of misconduct: Rs 1 lakh up to five times the fees for an individual, and Rs 5 lakh up to ten times the fees for a firm, plus debarment from six months up to ten years.
  • An aggrieved person can appeal to the Appellate Tribunal.

Until the Companies Act, 2013, audit quality in India was supervised mainly by the profession’s own body, the Institute of Chartered Accountants of India. Section 132 brought in a statutory regulator, the National Financial Reporting Authority (NFRA), which the Central Government constitutes by notification.

What the NFRA does (section 132(2))

  1. Recommends to the Central Government accounting and auditing policies and standards for companies or classes of companies and their auditors.
  2. Monitors and enforces compliance with accounting standards and auditing standards, in the prescribed manner.
  3. Oversees the quality of service of the professions associated with ensuring compliance with those standards, and suggests measures for improvement.
  4. Performs other related functions as prescribed.

The Central Government prescribes accounting standards (section 133) and auditing standards (section 143(10)) as recommended by ICAI, in consultation with and after examination of the NFRA’s recommendations. The Government can also direct that the audit report of a class of companies include a statement on specified matters, in consultation with the NFRA (section 143(11)); the Companies (Auditor’s Report) Order is made under this power.

Composition

A chairperson who is a person of eminence with expertise in accountancy, auditing, finance or law, and not more than fifteen other members, part-time and full-time, as prescribed. The chairperson and members declare that there is no conflict of interest. Full-time members cannot be associated with any audit firm, including related consultancy firms, during their appointment and for two years after. The NFRA works through divisions, each headed by the chairperson or an authorised full-time member, and an executive body of the chairperson and full-time members. Its head office is in New Delhi.

Investigation and enforcement (section 132(4))

  • The NFRA can investigate, either on its own motion or on a reference from the Central Government, matters of professional or other misconduct by any member or firm of chartered accountants, for the class of bodies corporate or persons prescribed. “Professional or other misconduct” has the meaning given in section 22 of the Chartered Accountants Act, 1949.
  • Once the NFRA has begun an investigation, no other institute or body may start or continue proceedings on that misconduct.
  • It has the powers of a civil court for discovery and production of books and documents, summoning and examining persons on oath, inspecting books, registers and documents, and issuing commissions for examination of witnesses or documents.

Penalties and debarment

Where misconduct is proved, the NFRA can order:

Against Penalty
An individual Not less than Rs 1 lakh, up to five times the fees received
A firm Not less than Rs 5 lakh, up to ten times the fees received

It can also debar the member or firm from being appointed as an auditor or internal auditor, from undertaking any audit of financial statements or internal audit, and from performing valuation under section 247, for a minimum of six months and up to ten years.

Appeal

A person aggrieved by an NFRA order imposing a penalty or debarment can appeal to the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee (section 132(5)).

Accounts and reporting

The NFRA keeps accounts as prescribed, its accounts are audited by the Comptroller and Auditor-General, and its annual report and the CAG’s audit report are laid before each House of Parliament.

What it means for companies and auditors

  • Audit firms should treat the NFRA’s standards and quality expectations as part of their working papers and engagement planning.
  • Which bodies corporate fall under the NFRA’s investigation jurisdiction is set in the Rules (the National Financial Reporting Authority Rules, 2018); these thresholds are not in the Act, so check the current Rules before concluding that your company or client is or is not covered.
  • Where the NFRA starts an investigation, ICAI’s disciplinary process on the same matter stops.

Points to check

  • This post follows section 132 of the Companies Act as published on India Code, including amendments up to the footnotes in that edition.
  • Details of the NFRA’s procedure, jurisdiction thresholds and fees are in the Rules, which were not reviewed for this post.

Frequently asked questions

What is the NFRA?

The National Financial Reporting Authority is the audit and accounting regulator constituted by the Central Government under section 132 of the Companies Act, 2013, with its head office at New Delhi.

What does the NFRA do?

It recommends accounting and auditing policies and standards to the Central Government, monitors and enforces compliance with them, and oversees the quality of service of the professions associated with ensuring compliance, suggesting improvements.

Can the NFRA investigate chartered accountants?

Yes. It can investigate, on its own or on a reference from the Central Government, professional or other misconduct by a member or firm of chartered accountants, for the class of bodies corporate or persons prescribed. Once it has started, no other institute or body can start or continue proceedings on that misconduct.

What penalties can the NFRA impose?

On proof of misconduct, a penalty of Rs 1 lakh to five times the fees received for an individual, and Rs 5 lakh to ten times the fees for a firm, and a bar on being an auditor, internal auditor or valuer for six months up to ten years.

Who can be on the NFRA?

A chairperson of eminence in accountancy, auditing, finance or law, and not more than fifteen other part-time and full-time members, who must declare no conflict of interest. Full-time members cannot be associated with an audit firm during their term and for two years after.

Can an NFRA order be appealed?

Yes, to the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Leave Travel Allowance (LTA): Exemption Limit, Rules, How to Claim and Eligibility

Posted on by CA Meet Dhrangadhariya

Last updated: 06 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • LTA is a tax-free reimbursement of the actual fare for travel within India, given by your employer for you and your family, in the old tax regime only.
  • The exemption is for two journeys in a block of four calendar years. The block 2022 to 2025 has ended and the new block is 2026 to 2029.
  • Only the fare is exempt: hotel, food, local travel and sightseeing are not. Travel abroad does not qualify.
  • Rail is limited to AC first class; where there is no rail or public transport, the rules set other limits, including ₹30 a km where no public transport exists.

Leave Travel Allowance (LTA), also called Leave Travel Concession (LTC), is an amount your employer gives you to travel with your family within India. The travel fare is exempt from tax, up to the limits in the rules, if you are in the old tax regime.

Where is it in the law?

For FY 2025-26 (assessment year 2026-27) LTA is exempt under section 10(5) of the Income-tax Act, 1961 and Rule 2B. From Tax Year 2026-27 it is in the Schedule III of the Income-tax Act, 2025 (Table Sl. No. 8), with the conditions in Rule 278 of the Income-tax Rules, 2026.

Who can claim?

An individual who gets travel concession or assistance from an employer (or a former employer, for travel after retirement or termination of service) for self and family, for travel to any place in India. Family includes the spouse, children, and dependent parents, brothers and sisters.

What is exempt?

Only the amount actually spent on the fare, subject to these limits:

  • By air: the fare for the class to which the employee is entitled (under the 1961 Act rule, the economy fare of the national carrier), by the shortest route.
  • By rail, or any other mode where the places are connected by rail: the AC first class rail fare by the shortest route.
  • Where the places are not connected by rail and a recognised public transport system exists: the first class or deluxe class fare by the shortest route.
  • Where no recognised public transport exists and no rates are prescribed: ₹30 per km for the shortest route.

Hotel, food, local conveyance, sightseeing and shopping are not exempt. The exemption cannot be more than what your employer gives you.

Two journeys in a block of four years

The exemption is for two journeys in a block of four calendar years. The blocks so far: 2018 to 2021, 2022 to 2025. The new block is 2026 to 2029, and the next is 2030 to 2033.

Carry-over of an unused journey

If you did not use the exemption in a block, the journey you first avail in the first calendar year of the next block is also exempt. It does not count against the two journeys of that new block. So for the block that ended in 2025, an unused journey can be claimed for a journey you make in 2026.

Children

The exemption is for not more than two surviving children. The limit does not apply to children born before 01/10/1998, or to additional children from multiple births after the first child.

Example

Ms Ankita travelled to Shimla in December 2025 with her husband and two children (four persons). The air fare was ₹10,000 each way per person, which equals the admissible fare. Her employer paid ₹50,000 as LTA.

  • Fare actually spent: ₹10,000 x 4 x 2 = ₹80,000.
  • LTA received: ₹50,000.
  • The exemption is the lower figure, ₹50,000, if she is in the old regime. Under the new regime nothing is exempt.

A trip to Dubai is not eligible, because the travel must be within India.

How to claim

  • Your employer sets a date for you to submit tickets, boarding passes or invoices and a declaration. The exempt amount then shows in Form 16.
  • If you did not claim it with your employer, you can still claim it when you file your return, in the exempt allowances part of the salary schedule. Keep your tickets and proofs.

LTA in the new tax regime

LTA is not available in the new regime. File your return on time under the old regime if you want it, because a person without business income chooses the old regime along with the return furnished by the due date.

Common mistakes

  • Claiming hotel, food or sightseeing costs.
  • Claiming travel outside India.
  • Claiming more than two journeys in a block, or for more than two children born after 01/10/1998.
  • Not keeping tickets and invoices.
  • Claiming the whole route when you visited several places: only the shortest route from the starting point to the destination counts.
  • Assuming that any holiday travel is covered. Some employers allow LTA only if you take leave and travel in that period, so follow your employer’s policy.

Frequently asked questions

How many LTA journeys are exempt?

Two journeys in a block of four calendar years. The current block runs from 2026 to 2029.

Can I claim LTA for foreign travel?

No. The exemption is only for travel to places in India.

What expenses are covered?

Only the fare for the travel. Hotel, food, local conveyance and sightseeing are not exempt.

Can I carry over an unused LTA journey?

Yes. If a journey was not availed in a block, one journey can be claimed in the first calendar year of the next block, in addition to the two journeys of that block.

Is LTA available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

ESIC Applicability, Wage Limit and Contribution Rates (3.25% + 0.75%)

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • ESI is a social security scheme giving medical care and cash benefits to employees earning up to Rs 21,000 a month (Rs 25,000 for a person with disability).
  • Contribution is 4% of wages in total: 3.25% by the employer and 0.75% by the employee.
  • Under the Code on Social Security it applies to every establishment with 10 or more persons (other than a seasonal factory), and to hazardous establishments even with one employee.
  • Contribution is due by the 15th of the next month. Employees earning up to Rs 176 a day pay no employee share.

The Employees’ State Insurance Corporation (ESIC) runs the ESI scheme, a self-financed social security scheme for employees against sickness, maternity, disablement and death caused by employment injury. It was set up under the Employees’ State Insurance Act, 1948. Since 21/11/2025 the Code on Social Security, 2020 has replaced that Act, but the scheme, the rates and the wage limit continue to be applied by ESIC in the same way.

Who is covered?

  • Establishments: every establishment in which ten or more persons are employed, other than a seasonal factory (First Schedule to the Code). Establishments doing notified hazardous or life threatening work are covered even with one employee. Employees earning above the wage ceiling are still counted for the head count.
  • Employees: those whose gross monthly wages are Rs 21,000 or less. For a person with disability the limit is Rs 25,000.
  • Once covered, always covered: an employee who crosses the wage limit mid-way through a contribution period stays covered until the end of that period.

Contribution rates

Particulars Rate on gross wages
Employer share 3.25%
Employee share 0.75%
Total 4%

These rates have applied since 01/07/2019, when they were reduced from 4.75% and 1.75%.

Employees whose average daily wage is up to Rs 176 pay no employee share; the employer pays only its own 3.25%.

Example

An employee earns Rs 20,000 a month. The employee share is Rs 150 and the employer share is Rs 650, so Rs 800 is deposited with ESIC. At Rs 22,000 a month the employee is outside the scheme.

Benefits

  • Medical care for the insured person and family, including hospital and specialist care.
  • Cash benefits: sickness, maternity, temporary and permanent disablement, dependants’ benefit, funeral expenses.

Due date and filing

The employer deducts the employee share from wages and deposits both shares by the 15th of the following month. Late payment attracts interest and damages. Payment and the monthly contribution details are filed through the ESIC portal.

Wages for ESI under the Code (section 2(88))

“Wages” means basic pay, dearness allowance and retaining allowance, and all other remuneration, but the Code leaves out items such as statutory bonus, house rent allowance, conveyance allowance, overtime, commission, the employer’s PF contribution and gratuity. There is a cap: if these exclusions together exceed one-half (or the percentage the Central Government notifies) of total remuneration, the excess is added back to wages.

Example 1: total remuneration Rs 30,000 a month: basic Rs 12,000, HRA Rs 10,000, conveyance Rs 4,000 and a special allowance of Rs 4,000 that is not an excluded item. Exclusions come to Rs 14,000, below half (Rs 15,000), so wages are Rs 16,000.

Example 2: same Rs 30,000 with basic Rs 8,000, HRA Rs 12,000 and conveyance Rs 10,000. Exclusions are Rs 22,000, which is Rs 7,000 over half. That Rs 7,000 is added back, so wages are Rs 8,000 plus Rs 7,000 = Rs 15,000.

The wages figure decides both whether the employee is within the ceiling and the contribution payable.

Points to check

  • The Code says contributions are paid at the rates prescribed by the Central Government and ordinarily fall due on the last day of the wage period, with exact days set in regulations. ESIC’s present practice is payment by the 15th of the next month; check current ESIC instructions.
  • The Rs 21,000 ceiling and the rates are set by notification, not by the Code, so verify them on the ESIC site when paying.

Frequently asked questions

What is the ESIC contribution rate?

4% of gross wages: 3.25% paid by the employer and 0.75% deducted from the employee.

What is the ESI wage limit?

Employees whose gross monthly wages are Rs 21,000 or less are covered. The limit is Rs 25,000 for a person with disability.

Which establishments must register?

Under the First Schedule to the Code on Social Security, 2020, every establishment in which ten or more persons are employed, other than a seasonal factory. An establishment doing notified hazardous or life threatening work is covered even with a single employee.

When is ESI contribution due?

By the 15th day of the month following the month for which wages are paid.

Does an employee earning Rs 150 a day pay ESI?

No employee share is deducted if the average daily wage is up to Rs 176, but the employer still pays 3.25%.

What changed with the new Labour Codes?

The Code on Social Security, 2020 came into force on 21/11/2025 and repealed the ESI Act, 1948. The Code leaves the rates and the wage ceiling to be prescribed by the Central Government. The Rs 21,000 ceiling and the 3.25% and 0.75% rates are the existing notified figures; we found no new notification changing them.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Reach the ₹1,50,000 Section 80C Limit Without New Investments

Posted on by CA Meet Dhrangadhariya

Last updated: 30 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • You may already be near the ₹1.5 lakh section 80C limit through payments you make anyway: EPF, life insurance premium, home loan principal, children’s tuition fees, and stamp duty on a house.
  • Add up these items first, then invest only the gap, if any.
  • Section 80C is available only in the old tax regime and is section 123 of the Income-tax Act, 2025 from Tax Year 2026-27.
  • Declare the items to your employer in Form 124 (earlier Form 12BB) so TDS is adjusted.

How to check your 80C position

1. Note your EPF contribution for the year
↓
2. Add home loan principal repaid and stamp duty if you bought a house
↓
3. Add children’s tuition fees (up to two children)
↓
4. Add life insurance premiums that qualify
↓
5. Subtract the total from ₹1,50,000 and invest only the balance

Every March someone suggests that you must invest in a tax-saving scheme to use up section 80C. Before you do, check what you have already paid during the year. Many ordinary payments qualify, and you may have used most of the ₹1,50,000 limit without any new investment.

Section 80C works only in the old tax regime. From Tax Year 2026-27 it is section 123 of the Income-tax Act, 2025, with the same ₹1.5 lakh limit.

Step by step

  1. Employees’ Provident Fund. Your own contribution to EPF during the year counts. Check your salary slip or EPF passbook. For many salaried people this alone is a large amount.
  2. Home loan principal. The principal part of your EMIs counts. Your lender’s certificate shows it.
  3. Stamp duty and registration. If you bought a house, the stamp duty and registration charges paid in that year count.
  4. Children’s tuition fees. Tuition fees for full time education of up to two children in India count, including playschool and preschool fees if they are tuition fees. Development fees, donations and transport do not.
  5. Life insurance premium. Premiums on a policy for yourself, your spouse or your children count. The premium should be within 10% of the sum assured for policies issued after 31/03/2012 (15% for a disabled person or specified diseases).
  6. Employee’s NPS contribution under section 80CCD(1) also counts within the same limit.
  7. Add them up and subtract the total from ₹1,50,000. The result is the balance of the limit.
  8. Invest only the balance, if any, in a product that suits your risk and your time horizon, such as PPF, ELSS, NSC, a 5 year tax-saver FD, Senior Citizens’ Savings Scheme or Sukanya Samriddhi Yojana.

Example

Priya’s EPF contribution is ₹72,000. She repaid ₹48,000 of home loan principal and paid ₹20,000 of tuition fees for one child. The total is ₹1,40,000, so only ₹10,000 of the limit is left. She does not need to invest ₹1.5 lakh in ELSS.

Who can claim?

Individuals (resident or non-resident) and Hindu undivided families can claim section 80C. Companies, firms and LLPs cannot.

How to claim

Give your employer a declaration in Form 124 (earlier Form 12BB) with proofs, so that less TDS is deducted. EPF is usually already known to the employer. If you did not declare it, you can claim the deduction when you file your return, as long as you are in the old regime and file on time.

What not to do

  • Do not buy a product only because the limit is unfilled. Choose it for the return, lock-in and risk.
  • Do not forget that a home loan principal or stamp duty claim is reversed if you sell the house within five years of getting possession.
  • Do not assume this works in the new tax regime. If you move to the new regime, 80C is lost altogether, so compare your total tax first.

Frequently asked questions

Can I reach the section 80C limit without investing?

Often, yes. EPF, life insurance premium, home loan principal, tuition fees and stamp duty can already add up to ₹1.5 lakh.

Do I need to invest more once the limit is reached?

No. The deduction is capped at ₹1.5 lakh, so extra investment under 80C does not reduce tax further.

Is my EPF counted?

Yes, your own contribution to the Employees’ Provident Fund counts.

Which tuition fees count?

Tuition fees for full time education of up to two children in India. Development fees and donations do not count.

Is 80C available in the new tax regime?

No. It is available only in the old tax regime.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

What are the 5 Heads of Income Tax?

Posted on by CA Meet Dhrangadhariya

Last updated: 17 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • All income is sorted into five heads: salary, house property, profits and gains of business or profession, capital gains, and income from other sources.
  • Each head has its own rules for what is taxable and which expenses and deductions are allowed.
  • Capital gains are taxed by holding period and asset type, for example 12.5% on long-term gains from most assets sold on or after 23 July 2024.
  • Correct classification decides how tax is computed and which ITR form you file.

Under the Income Tax Act, all income is sorted into five heads of income: salary, house property, profits and gains of business or profession, capital gains, and income from other sources. Each head has its own rules for what is taxable and which expenses and deductions are allowed. Putting each income under the correct head is the first step in computing tax and in choosing the right ITR form. The five heads continue under the Income-tax Act, 2025 (from 1 April 2026), although section numbers have changed. Section numbers quoted below are those of the 1961 Act.

The Five Heads of Income

  1. Income from Salary
  2. Income from House Property
  3. Profits and Gains of Business or Profession
  4. Capital Gains
  5. Income from Other Sources

1. Income from Salary

Salary is income received under a contract of employment. It includes basic pay, allowances, advance salary, bonus, commission, perquisites, gratuity, leave encashment and pension.

  • Section 15 describes what is taxable as salary.
  • Section 16 gives the deductions from salary, mainly the standard deduction.
  • Section 17 defines salary, perquisites and profits in lieu of salary.

Some allowances are exempt in the old regime, for example House Rent Allowance (HRA) for those living in rented houses. A transport allowance of up to ₹3,200 per month for certain specially-abled employees (Rule 2BB) is exempt in both regimes. The new regime allows very few other exemptions but gives a standard deduction of ₹75,000 (₹50,000 in the old regime).

2. Income from House Property

Rent from a building or land attached to it is taxed under this head. The tax is computed on the annual value of the property, less municipal taxes and the standard deduction of 30%, less interest on a home loan.

There are three kinds of property:

  1. Self-occupied property
  2. Let-out property
  3. Deemed let-out property

Up to two self-occupied houses are treated as self-occupied with nil annual value. Any other house is treated as deemed let-out. Interest on a loan for a self-occupied house is allowed up to ₹2 lakh in the old regime. Income from a house property is reported in Schedule HP of the ITR.

3. Profits and Gains of Business or Profession

Profits from any business or profession are taxed under this head after deducting the expenses allowed. It covers:

  • Profits of a trade, manufacture or service business, and professional income.
  • Income taxed under the presumptive schemes of sections 44AD, 44ADA and 44AE.
  • Profit or loss from futures and options trading and intraday trading in shares (speculative income is treated separately).
  • Salary, bonus, commission and interest received by a partner from the firm, to the extent allowed.
  • Certain incentives, licences and export benefits connected to the business.

Individuals and HUFs with business or professional income file ITR-3, or ITR-4 under the presumptive scheme.

4. Capital Gains

Profit from selling a capital asset such as property, shares, mutual funds, gold or bonds is taxed under capital gains. The gain is short-term or long-term, depending on how long the asset was held.

Asset Held for long-term if more than Short-term gain tax Long-term gain tax (sale on or after 23 July 2024)
Land and building 24 months Slab rates 12.5% without indexation
Unlisted shares 24 months Slab rates 12.5% without indexation
Listed shares and equity mutual funds 12 months 20% 12.5% on gains above ₹1.25 lakh a year
Other assets such as gold 24 months Slab rates 12.5% without indexation
Debt mutual funds bought after 1 April 2023 Not applicable Slab rates Slab rates

For land and buildings bought before 23 July 2024, resident individuals and HUFs can choose to pay 20% with indexation instead of 12.5% without it. Capital gains are reported in Schedule CG, and individuals with capital gains generally file ITR-2 or ITR-3.

5. Income from Other Sources

Anything that is taxable but does not fall under the four heads above comes here. Common examples are interest on savings accounts and fixed deposits, dividends, winnings from lotteries and games, gifts above the limit, and rent from plant, machinery or furniture when it is not business income.

Heads of Income vs Sources of Income

A source of income is where the money comes from, for example a salary, a fixed deposit, a rented flat or a business. A head of income is the tax category the Act puts that source into. Many sources can fall under one head, and each head has its own computation rules.

Conclusion

Knowing the five heads helps you report each income in the right place, claim the deductions that belong to it and file the correct ITR form. Consult a qualified professional if an income is difficult to classify.

Frequently asked questions

What are the 5 heads of income?

Income from salary, income from house property, profits and gains of business or profession, capital gains, and income from other sources.

Which head does interest income come under?

Interest on savings accounts and fixed deposits is taxed under Income from Other Sources, unless it is a business receipt.

What is the difference between a head and a source of income?

A source is where the money comes from, such as a job or a rented flat. A head is the tax category the Act puts that source into.

Do the five heads continue under the Income-tax Act, 2025?

Yes. The five heads continue from 1 April 2026, with new section numbers.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

How to Save Tax Other Than 80C: Deductions and Exemptions for 2026-27

Posted on by CA Meet Dhrangadhariya

Last updated: 25 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Besides section 80C, you can save tax through NPS (₹50,000 extra), health insurance (up to ₹1 lakh), home loan interest, education loan interest, donations, rent, disability and treatment deductions, and exempt life insurance maturity.
  • Most of these work only in the old tax regime. In the new regime the standard deduction (₹75,000) and the employer’s NPS contribution are the main benefits.
  • Each deduction now has a new section number in the Income-tax Act, 2025 from Tax Year 2026-27: for example 80D is section 126 and 80E is section 129.
  • Compare your tax under both regimes before you choose.

Section 80C is the best known deduction, but it is only one of many. If you are in the old tax regime, these other sections can reduce your tax further. From 01/04/2026 the Income-tax Act, 2025 applies, and each deduction has a new section number, shown below.

Deductions other than 80C

Deduction Limit Section in 1961 Act Section in 2025 Act
Own contribution to NPS ₹50,000, over and above 80C 80CCD(1B) 124(3)
Health insurance, preventive check-up, medical for senior citizens ₹25,000 self and family (₹50,000 if senior), ₹25,000 for parents (₹50,000 if senior); preventive check-up ₹5,000 within these 80D 126
Dependant with disability ₹75,000 or ₹1,25,000 80DD 127
Treatment of specified diseases ₹40,000 or ₹1,00,000 (senior citizen) 80DDB 128
Education loan interest Whole interest, 8 years 80E 129
First-time buyer home loan interest (loans of FY 2016-17) ₹50,000 80EE 130
Donations 100% or 50%, with a 10% limit for some 80G 133
Rent without HRA Up to ₹60,000 80GG 134
Contributions to political parties Whole amount, other than cash 80GGC 137
Savings account interest ₹10,000 80TTA 153
Deposit interest, senior citizens ₹50,000 80TTB 153
Person with disability ₹75,000 or ₹1,25,000 80U 154

Chapter VIII of the 2025 Act contains these deductions. The loan interest deduction for electric vehicles (80EEB) ended for loans sanctioned after 31/03/2023, and the additional affordable housing interest (80EEA) was for loans sanctioned up to 31/03/2022.

Other ways to save tax

  • Home loan interest: up to ₹2 lakh a year on a self-occupied house (section 24(b) of the 1961 Act, section 22 of the 2025 Act). On a let-out house the whole interest is deducted against the rent, with the loss set-off limited to ₹2 lakh a year.
  • Exempt allowances and HRA: HRA, LTA, children education allowance and others reduce taxable salary in the old regime.
  • Exempt insurance proceeds: the maturity amount of a life insurance policy is exempt if the premium conditions are met: for policies issued from 01/04/2012, premium up to 10% of sum assured (15% for special policies), and for policies issued on or after 01/04/2023 the total premium must be below ₹5 lakh a year, or below ₹2.5 lakh for unit linked policies.
  • Agniveer Corpus Fund: the whole contribution is deductible.

Employer contribution to NPS

If your employer contributes to your NPS account, the contribution is deductible up to 10% of salary (14% for Government employers) in the old regime. In the new regime the limit is 14% for all employers. This is the one major deduction that works in both regimes.

What works in the new tax regime?

  • Standard deduction: ₹75,000 for salary and pension (₹25,000 for family pension).
  • Employer’s NPS contribution, up to 14% of salary.
  • Interest on a let-out house against its rent.
  • Contribution to the Agniveer Corpus Fund.
  • Travel, daily charges and conveyance allowances, and the disabled employee’s transport allowance.

Old or new regime?

Add up all deductions and exemptions you can claim. If they are large enough (for example HRA, 80C, 80D and home loan interest together), the old regime can still cost less. If they are small, the new regime usually wins. Do this calculation every year, since you choose with your return, and a person without business income must choose the old regime along with the return furnished by the due date.

Frequently asked questions

What can I claim over and above section 80C?

NPS (₹50,000 under 80CCD(1B)), health insurance (80D), education loan interest (80E), donations (80G), rent without HRA (80GG), home loan interest, savings interest (80TTA or 80TTB) and disability related deductions.

What is the limit under section 80D?

₹25,000 for self, spouse and children (₹50,000 if a senior citizen) and the same again for parents, so up to ₹1,00,000 in total when both are senior citizens.

Which of these work in the new tax regime?

Mainly the standard deduction of ₹75,000, the employer’s contribution to NPS, and interest on a let-out house against its rent. Most other deductions need the old regime.

What are the new section numbers?

80D is section 126, 80E is 129, 80G is 133, 80GG is 134, 80TTA and 80TTB are 153, and 80CCD(1B) is 124(3) in the Income-tax Act, 2025.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Powers and Duties of a Statutory Auditor (Sections 143 to 147): Audit Report, Fraud Reporting, Prohibited Services and Penalties

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • An auditor has a right of access at all times to the books and vouchers and may ask officers for any information needed. The audit report must say whether the accounts give a true and fair view and whether the company has adequate internal financial controls with reference to financial statements.
  • The auditor must report suspected fraud by officers or employees: to the Central Government above the prescribed amount, otherwise to the audit committee or the Board.
  • An auditor cannot provide services such as bookkeeping, internal audit, financial information system design, actuarial, investment advisory, investment banking, outsourced financial services or management services.
  • For contravening sections 139, 143, 144 or 145 the fine is Rs 25,000 to Rs 5 lakh or four times the remuneration, whichever is less. Wilful deception can mean up to one year in prison and a fine of up to Rs 25 lakh.

The statutory auditor is appointed by the members to protect them, so the Companies Act, 2013 gives the auditor wide powers, a long list of things that the audit report must say, and strong penalties when those duties are not performed.

Powers (section 143(1))

  • A right of access at all times to the books of account and vouchers of the company, wherever they are kept.
  • The right to require from officers of the company any information and explanation needed for the audit.
  • A duty to inquire, among other matters, whether: loans and advances made against security are properly secured and not prejudicial to the company or its members; transactions represented only by book entries are prejudicial; shares, debentures or other securities (other than by an investment or banking company) were sold below their purchase price; loans and advances are shown as deposits; personal expenses are charged to revenue account; and, where shares are said to have been allotted for cash, cash was actually received.
  • The auditor of a holding company has access to the records of its subsidiaries and associate companies as far as consolidation requires.
  • The accounts of a branch office are audited either by the company’s auditor or by another qualified person appointed under section 139 (or, for a branch outside India, by a local qualified person).

What the audit report must contain (section 143(2) to (4))

The auditor reports to the members on the accounts and every financial statement laid before the company in general meeting, taking account of the Act, accounting and auditing standards and the matters required by rules or by an order under section 143(11) (such as CARO). The report states whether, to the best of the auditor’s information and knowledge, the accounts give a true and fair view of the state of affairs, profit or loss and cash flow for the year.

It must also state:

  1. whether all information and explanations needed were obtained, and if not, the details and effect;
  2. whether proper books of account have been kept, and proper returns received from branches not visited;
  3. how a separate branch auditor’s report was dealt with;
  4. whether the balance sheet and profit and loss account agree with the books and returns;
  5. whether the financial statements comply with the accounting standards;
  6. observations on financial transactions or matters with an adverse effect on the company’s functioning;
  7. whether any director is disqualified under section 164(2);
  8. any qualification, reservation or adverse remark on the maintenance of accounts;
  9. whether the company has adequate internal financial controls with reference to financial statements and the operating effectiveness of those controls; and
  10. such other matters as are prescribed.

Where any item is answered in the negative or with a qualification, the report must give the reasons.

Every auditor must comply with the auditing standards (section 143(9)); until the Central Government notifies standards on the recommendation of ICAI, the standards specified by ICAI are deemed to be the standards.

Reporting fraud (section 143(12) and (15))

If, in the course of duties, the auditor has reason to believe that an offence of fraud involving the prescribed amount is being or has been committed in the company by its officers or employees, the auditor reports it to the Central Government within the prescribed time and manner. For a fraud below the prescribed amount, the report goes to the audit committee (or to the Board, where there is no audit committee). The company must disclose such frauds, reported to the committee or Board but not to the Government, in the Board’s report. A report made in good faith is not a breach of any other duty (section 143(13)). The same section applies to cost accountants doing cost audit and company secretaries doing secretarial audit.

Penalty for failing to report: Rs 5 lakh in a listed company, and Rs 1 lakh in any other company. The prescribed amount, time and form are in the Companies (Audit and Auditors) Rules, 2014, so check the current figures there.

Services an auditor cannot render (section 144)

An auditor may provide other services only if the Board or audit committee approves them, and never these, directly or indirectly, to the company, its holding company or its subsidiary: accounting and bookkeeping; internal audit; design and implementation of any financial information system; actuarial services; investment advisory services; investment banking services; outsourced financial services; management services; and any other prescribed service. “Directly or indirectly” includes services through relatives, partners, a parent, subsidiary or associate entity, or any entity in which the auditor or a partner has significant influence or control, or whose name or brand is used. An auditor who renders any such service is also disqualified under section 141(3)(i).

Signing the report (section 145)

The auditor signs the report, and signs or certifies any other document of the company, in accordance with section 141(2) (only partners who are chartered accountants sign for a firm). Qualifications, observations or adverse comments on financial transactions in the report are read before the company in general meeting and open to inspection by any member.

Penalties (section 147)

Who and what Consequence
Company contravening sections 139 to 146 Fine of Rs 25,000 to Rs 5 lakh; every officer in default, Rs 10,000 to Rs 1 lakh
Auditor contravening section 139, 143, 144 or 145 Fine of Rs 25,000 to Rs 5 lakh, or four times the remuneration, whichever is less
Auditor acting knowingly or wilfully to deceive the company, shareholders, creditors or tax authorities Imprisonment up to one year and fine of Rs 50,000 to Rs 25 lakh, or eight times the remuneration, whichever is less
Auditor convicted under section 147(2) Refund of remuneration and damages for loss caused by incorrect or misleading statements in the audit report (to the company, statutory bodies, members or creditors)
Audit firm, where partners acted fraudulently The partners and the firm are jointly and severally liable; for criminal liability other than fine, only the partners concerned

The Tribunal can also direct a change of auditor where the auditor has acted fraudulently or colluded in fraud, and the auditor is barred from appointment for five years under section 140(5).

Points to check

  • The amount above which fraud goes to the Central Government, and the time and form of reporting, are set by the Rules and can change.
  • Listed companies and other classes face further reporting duties from the Companies (Auditor’s Report) Order and SEBI rules, which this post does not cover.
  • The text above follows the Companies Act as published on India Code, including its amendments up to the footnotes in that edition.

Frequently asked questions

What are the main powers of a company auditor?

A right of access at all times to the books of account and vouchers, wherever kept, the right to require information and explanations from officers, and, for a holding company’s auditor, access to the records of subsidiaries and associates for consolidation.

What must the audit report state?

Whether the accounts give a true and fair view, whether all information was obtained, whether proper books were kept, whether the balance sheet and profit and loss account agree with the books, whether the financial statements comply with accounting standards, adverse observations, director disqualification, qualifications on accounts and adequacy and operating effectiveness of internal financial controls.

Does the auditor have to report fraud?

Yes. If the auditor has reason to believe that an offence of fraud involving the prescribed amount is being or has been committed by officers or employees, it is reported to the Central Government. Smaller frauds are reported to the audit committee or the Board, and the company must disclose them in the Board’s report.

Which services is an auditor barred from providing?

Accounting and bookkeeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, outsourced financial services, management services and any other service prescribed, whether direct or indirect, to the company, its holding or its subsidiary.

What is the penalty if an auditor fails to report fraud?

A penalty of Rs 5 lakh for a listed company and Rs 1 lakh for any other company.

Can an auditor be held liable to refund fees?

Yes. On conviction under section 147(2) the auditor must refund the remuneration received and pay damages for loss caused by incorrect or misleading statements in the audit report.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Types Of Taxes In India: Direct Tax And Indirect Tax

Posted on by CA Meet Dhrangadhariya

Last updated: 28 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Taxes in India are direct (income tax, Securities Transaction Tax) or indirect (GST, customs duty, limited central excise, state VAT on petroleum and alcohol).
  • Direct taxes are borne by the person on whom they are levied; indirect taxes are passed on to the final consumer.
  • Wealth tax, gift tax and fringe benefit tax no longer exist, and GST replaced service tax, sales tax, state VAT on most goods and octroi.
  • The note compares both kinds with advantages, disadvantages and a difference table.

Taxes in India are broadly classified into direct taxes, such as income tax, and indirect taxes, such as GST and customs duty. Direct taxes are paid by the person on whom they are levied. Indirect taxes are included in the price of goods and services, and the burden passes to the final consumer. Knowing the types of taxes helps taxpayers comply with the law and plan their finances.

Types Of Taxes In India

Direct taxes are administered by the Central Board of Direct Taxes (CBDT). Indirect taxes (GST, customs and central excise) are administered by the Central Board of Indirect Taxes and Customs (CBIC).

Direct Taxes

A direct tax is levied on the income or profits of a person, who has to bear it and cannot pass it on to someone else. The main direct taxes in force are:

  • Income tax: charged on the income of individuals, HUFs, firms, companies and other persons. Capital gains tax is part of income tax. Surcharge and the 4% health and education cess are added on top of income tax.
  • Securities Transaction Tax (STT): charged on specified transactions in listed securities. It is a direct tax collected at the time of the transaction.

Several direct taxes that older books still list no longer exist: wealth tax (abolished from AY 2016-17), gift tax (abolished in 1998; gifts above the prescribed limit are now taxed as income) and fringe benefit tax (abolished from AY 2010-11).

Indirect Taxes

An indirect tax is charged on goods and services. It is collected by the seller and the burden is passed on to the end consumer. The main indirect taxes in force are:

  • Goods and Services Tax (GST): a single tax on the supply of goods and services, in force since 1 July 2017. It replaced service tax, central excise on most goods, state VAT on most goods, central sales tax, octroi and entry tax, and removed the cascading effect.
  • Customs duty: charged on goods imported into India.
  • Central excise duty: now limited to a small set of goods, mainly petroleum products.
  • State VAT: still levied by states on petrol, diesel and alcohol for human consumption.

Other levies

Some levies are neither central direct nor indirect taxes: property tax (local municipal), stamp duty and registration fees (state), and professional tax (state, capped at Rs 2,500 a year under the Constitution). A toll is a fee for using a road, not a tax.

Direct taxes Indirect taxes Other levies
Income tax (including capital gains) GST Property tax
Securities Transaction Tax Customs duty Stamp duty and registration fees
Central excise (limited goods) Professional tax
State VAT (petroleum, alcohol) Toll (a fee)

Advantages And Disadvantages Of Direct Tax

Advantages Disadvantages
Progressive in nature: people with lower incomes pay less tax than people with higher incomes. Some taxpayers evade or avoid tax.
Helps reduce income inequality. Compliance and documentation can be complex and time-consuming.
Certainty: the government and the taxpayer both know what is to be paid and when. The burden cannot be transferred to anyone else.

Advantages And Disadvantages Of Indirect Tax

Advantages Disadvantages
Everyone who spends contributes to nation-building. Raises the overall price of goods and services.
Easy to collect from the end consumer. Consumers often do not know how much tax they pay.
Lower rates can be applied to essential goods and higher rates to luxury goods. Regressive in nature, as it takes a larger share of low incomes.
The burden can be passed to the end consumer. Revenue is hard to predict because it depends on what people buy.

Difference Between Direct Tax And Indirect Tax

Basis Direct Tax Indirect Tax
Definition Tax levied directly on the income or profits of a person. Tax levied on the supply of goods and services.
Burden of Tax Cannot be shifted; borne by the person on whom it is imposed. Can be shifted; ultimately borne by the end consumer.
Governing Body Central Board of Direct Taxes (CBDT). Central Board of Indirect Taxes and Customs (CBIC).
Examples Income tax, Securities Transaction Tax. GST, customs duty, central excise.
Impact on Prices Does not directly affect the price of goods and services. Forms part of the price of goods and services.
Payment Paid directly to the government by the taxpayer. Collected by the seller or service provider and paid to the government.

Now that you know the main types of taxes in India, it is easier to see which ones apply to you.

Frequently asked questions

What are the two main types of taxes in India?

Direct taxes, such as income tax, which are paid by the person on whom they are levied, and indirect taxes, such as GST and customs duty, which are passed on to the final consumer.

Is wealth tax still charged in India?

No. Wealth tax was abolished with effect from AY 2016-17. Gift tax was abolished in 1998 and gifts above the prescribed limit are now taxed as income.

Which taxes did GST replace?

GST replaced service tax, central excise on most goods, state VAT on most goods, central sales tax, octroi and entry tax.

Who administers direct and indirect taxes?

Direct taxes are administered by the Central Board of Direct Taxes (CBDT) and indirect taxes such as GST, customs and central excise by the Central Board of Indirect Taxes and Customs (CBIC).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.