German Income Tax refund for Indians - About German Income Tax system

Whenever someone think about the German Tax system, he/she will get inputs that tax rate is very high as much as 40%. Actually this is not correct, this perception is due to not understanding various types of mandatory deductions. Here we are explaining the Income tax and other mandatory deductions from your salary and also what is refundable.

Germany has very systematic income tax system.

As in India, we have TDS system, here also income tax is deducted from your salary directly.

Key salient features

Financial year is same as calendar i.e. January to December
Tax rate is based on your marital status, kids etc. So register you family and check the tax class in the "Bescheinigung für der lohnsteuerabzug".
Tax rate is progressive, not flat like India (details given later)
You get a document (Tax card or Lohnsteuerkarte) from Rathaus about your tax class and your tax office every year. First one you can get while registering at Rathaus.
Tax paid in excess (details in FAQs) needs to be claimed back through tax return filing

Tax classes (Steuerklasse)

Most of Indians falls into Tax class I or III (One or three). If both partners are working then tax class IV and IV or III and V.

NOTE: For tax class III (Three), husband and wife should be registered and living in Germany. If the spouse is living outside Germany then Tax Class I (One) will be applicable.

Tax card (Bescheinigung für den Lohnsteuerabzug)

- Tax cards (Lohnsteuerkarte) are issued by the local registry office (Rathaus or Einwohnermeldeamt) / Finanzamt every year. This card will indicate the appropriate tax class according to the individual's personal status (as mentioned above). Generally it is dispatched to your address automatically, but in case you don't receive you need to contact local registry office or request it online.
- "Bescheinigung für den Lohnsteuerabzug" has details of your responsible tax office (Finanzamt). It basically depends on your city of residence and your surname (Family name).
- Wage tax for all employees is deducted by the employer and forwarded to the responsible tax office (Finanzamt).
- Tax return needs to filed in next calendar year to claim any excess tax. Employer provides annual Lohnsteuerbescheinigung (German Wage tax certificates) about your income details. Einkommensteuererklärung (German income tax return declaration) is filed to apply for tax refund.

Tax Identification number misplaced, lost or forgotten?

You can get Renewed notification of ID no using following link. The ID number you will receive by postal mail to your current registration address in Germany.

https://www.bzst.de/SiteGlobals/Kontaktformulare/DE/Steuerliche_IDNr/Mitteilung_IdNr/mitteilung_IdNr_node.html

A notification of the Tax ID number by email or phone is not possible for reasons of data protection.

Tax Rates (Lohnsteuer)

A basic personal allowance is deducted from taxable income; it is EUR 8,354 for single persons and EUR 16,708 for married couples.

The minimum tax rate is 14%. To start with, this rate increases progressively up to a rate of 42% for a taxable income of EUR 52,882 / EUR 105,762 (single persons/ married couples). Above this income, their are flat rates.

NOTE: The above table is valid for year 2022. For earlier years, there are little different tax rates.

As you can note above the tax allowance is double for married person. The basic principal is that income is divided half between couple to calculate income tax liability. You may be wondering about the tax range between the income level. This is a different concept than India, it is called progressive tax. See the progressive chart graph here.

Calculate your tax at this link or at website: https://www.bmf-steuerrechner.de

Other Statutory deductions

There are following statutory deductions which are not actually income tax, but deducted from salary.

Solidarity surcharge - This surcharge was initially applicable to all tax payers as way to finance former East Germany after reunification. Since 2021 however, only tax payers with income higher than 96409€ (single person) are subject to it. Account for an additional 5.5% of your income tax.
Church tax
Employee´s share in health insurance
Nursing insurance scheme
Pension insurance fund
Unemployment insurance

Following table shows various types of insurance and contributions of employee in % of Gross salary