The idea of this post is to streamline the taxation process for an expatriate. Expatriate taxation is variedly provided as a service from taxation firms, CAs, CFOs. The edge we have over others is that we have been dealing with expatriates across the country that are being designated time-bound projects in the major cities like Bangalore, Delhi-NCR, Ahmadabad etc. Through this post we have attempted to simplify the Indian Tax System.
Following are the basics about Understanding Indian Tax System which are a must to understand the Expatriate Taxation:
The Indian Tax system runs from 1st April to 31st March of the next year.
According to the Indian Tax System, tax is charged according to the Residential status of the person and not his/ her citizenship.
The different residential status of India are as follows:
1. Resident: If a person spends an aggregate of 182 days or more in India in the relevant tax year then the person is considered as a resident. Further, if a person stays in India for 60 days in the relevant year and in the last 4 years proceeding the relevant year has spent 365 or more days, she/he is considered a Resident of India. 2. Non-Resident: If the person is unable to satisfy the above conditions then he/she is not a resident of India. 3. Resident But Not Ordinarily Resident: A resident has to fulfil any one of the following conditions to be considered as a “resident but not ordinarily resident”:
-He or she has been a Non- resident for 9 out of 10 preceding years to the relevant year.
– He or she has been in India for 729 days or less during the last 7 years preceding the relevant year. 4. Resident and Ordinary Resident: A resident individual satisfying none of the above conditions is considered as a “Resident and Ordinary Resident”
An expatriate who is an ROR is taxable on worldwide income. An expatriate who is RNOR is taxed on India sourced income.
Salary Income is subject to income tax if services are rendered in the country, irrespective of whether salary is received in India or not. Other incomes are subject to Income tax if received or are deemed to be received in India.
After deductions of allowances, income tax is imposed at graduated rates. The tax rates for the tax year 2015-16:
Taxable Income Over(INR)
Tax on column 1(INR)
Percentage on Excess
A surcharge 12% is applicable on tax payers having a total income of more than 10 million INR. Further, there is a levy of an education cess of 3% of the tax and surcharge (if applicable). Resident senior citizens (age pf 60 years or more) having income up to 300, 000 INR do not have to pay income tax. For resident very senior citizens (aged 80 years and above) the basic exemption limit is 500, 000 INR.
Husband and wife are considered as two separate and independent individuals for the purpose of income tax. However, if an individual transfers an asset to the spouse without adequate consideration then income arising directly or indirectly is subject to tax in the hands of the transferor.
Profits or gains from a trade, profession, business or vocation, which carry out within India, are subject to tax whether you are a resident or a non-resident. If you are a ROR in India, a liability will arise even if your trade, etc, is carried on outside India.
If you are treated as a tax resident of another country, you may qualify for relief from Indian Tax under a double taxation agreement between that country and India.
Contribution made to the provident fund by an international workers are eligible for deduction from his or her taxable income up to 1,50,000 INR. And many other deductions u/s 80C to 80U is also available to any resident of the country.
What to do Before You arrive in India?
A foreign national visiting India must have a valid passport and the right kind of visa. A foreign national who wishes to work in India is required to apply for an employment visa (EV). AN EV is granted to skilled and qualified foreign national drawing a salary in excess of 25000 USD per annum. EV is granted for a period of 5 years from initial grant period to renewals in India. A foreign national is given business visa who intends to travel to India for bona fide business reasons. It is provided to the individual for a period of six months, one year and in some circumstance five years.
Indian income tax is levied for services rendered in India. A foreign expat in India should be employed as a full-time employee under a service contract setting out in clear terms the remuneration or salary and the non-cash benefits to which you will be entitled.
As a foreign expat employed in India, you can open a bank account in India with an Indian bank or Indian branch of a foreign bank.
An expat transferring his residence to India is allowed duty- free imports of used personal and household articles and jewellery upto 50,000 INR by a male passenger and 1, 00,000 INR by a female passenger.
However, 17 articles specified in the baggage rules, 1998 which include HH appliance, business machines, vessels, aircraft, gold and silver etc, are not included for the purpose of calculating the limits as laid down.
What to do when you arrive in India?
Upon arrival in India for employment purposes, an expat should apply to the agency appointed by the Indian income tax authorities in the prescribed form for allotment of a Permanent Account Number (PAN).
Expats entering India on EV, valid for more than 1890 days or foreign national intending to stay in India for more than 180 days, are required to register with the concerned jurisdictional Foreigners Regional Registration Office (FRRO) within 14 days of their first arrival in India.
In case a foreign expat is importing a vehicle to India, a foreign expat must register and license the vehicle unless they are visiting India for less than three months. An international driving license is valid in India.
When a foreign expat comes to India for employment and his/her employment income is taxable in India, the employer will be entitled to withhold tax on foreign expat’s earnings from salary at applicable rates. This is necessary even if the employer is not a resident of India.
What to do at the end of Tax Year?
At the end of every tax year a tax return is to be filled with the income tax authorities.
The return is to be filled at the latest by 31st July following the end of the relevant year. It is mandatory to file the return online if the total income exceeds 500,000 INR.
You should ensure that the tax return is filled in with the utmost care without any apparent mistakes or incorrect deductions. Interest is charged for delay in filing the return.
The tax authorities may accept an expat’s tax return without requiring your presence for assessment proceedings. The tax authorities may take up an expat’s case of scrutiny and issue a notice to appear before them to explain various issues or points raised by them in connection with the taxable income and claims for deduction.
After taking into account the expat’s representations, etc the tax authority will issue an assessment order determining the taxable income, gross tax liability and net tax payable by expatriate or refundable to you.
If an assessment on income shows a balance of tax payable, a demand notice from the tax authorities is served for the tax amount and the interest if any already due on that date of assessment. If this is not paid on the due dates mentioned in the demand notices, further interest would be payable. Generally, no postponement of payment of tax is permitted even though an expatriate appeal against an assessment.
What to do when you are leaving India?
As a non-domiciled individual in India, you are required to obtain a no objection certificate from the Indian tax authorities at the time of leaving the country.
Employment income credited to your account in India is freely repartiable.
You should seek professional advice before planning your departure to and from India to minimise your Indian Tax Liabilities.
Further to this if you seek any further clarity of Expatriate Taxation, feel free to write to us on, firstname.lastname@example.org or you can also call us at +91-9599444639.