Expatriates Taxation in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide expatriates a general information regarding their taxation

Expatriates Taxation in India

This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide expatriates a general information regarding their taxation in India . It contains relevant rules prevailing in India in March, 2009.

The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of circumstances. We strongly recommend readers to seek professional advice before taking any decision.

For any further information, please visit PGA at www.pgaindia.in or E-mail: [email protected] or [email protected]

General Principles

© P. GAMBHIR & ASSOCIATES 2009 2

• A foreign national working in India is taxed in India based on

his/her residential status under Indian tax laws.

• The personal tax liability of an individual is not based on age,

sex, citizenship or nationality.

• Certain tax benefits are available to resident women and senior

citizens.

• There is no special tax regime for foreigners working in India.

Indian Tax Year

Starts from 1st April and ends on 31st March of the succeeding year and is known as

‘Previous Year’ or ‘Financial Year’. Income earned in the previous year is taxed in the

‘Assessment Year’. Assessment year is the financial year subsequent to the previous

year.

For Example, income of the previous year 2009-10 (01.04.2009 to 31.03.2010) will be taxed

in the assessment year 2010-11 (01.04.2010 to 31.03. 2011) at the rates, as applicable.


Basis of Tax Liability


As mentioned, tax Liability of an individual in India is based upon his/her residential status,

which in turn solely depends on his/her physical presence in India in any tax/financial year

regardless of the purpose or place of stay. It is not essential that the stay should be

continuous or at one place. Part of a day is treated as full day. Dates of arrival and departure

(both) are included.

An individual can be:

•Resident and ordinary resident (ROR) or

•Resident but Not Ordinary Resident (RNOR) or

•Non-Resident (NR)

CONT...

Basis of Tax Liability Resident Stay in India for 182 days or more in any tax year; or Stay in India for 60* days or more in any tax year and 365 days or more (in aggregate) in four years

immediately preceding the tax year for which residential status is to be determined.

* For Indian Citizens and Persons of Indian Origin (PIO) the period of ’60 days’ is to be read as ‘182 days’.

Non Resident Non resident is a person who is not a resident or who satisfies none of the above conditions.

Resident but not Ordinary Resident

An individual who satisfies either of the above conditions and further satisfies any one of the following additional conditions is treated as resident but not ordinary resident:

Is non-resident in India in 9 out of 10 previous years immediately preceding the tax year for which residential status is to be determined; or

Is present in India for 729 days or less during 7 previous years immediately preceding the tax year for which residential status is to be determined.

A resident individual satisfying none of the above additional conditions is treated as resident and ordinary resident (ROR).


If a person comes to India on or before 30th September 2008 and stays till 31.03.2009, he would be treated as resident for the tax year 2008-09 and would be taxed from the date of arrival to 31st March, 2009.

If a person comes to India on 31st January 2009 and had stayed in India for 365 days or more

during the 4 years immediately preceding the relevant previous year (from 1.4.04 to 31.3.2008), he will be treated as resident for the tax year 2008-09.

If a person comes to India on 5th October 2008 and was not in India for 365 days or more during the 4 years immediately preceding the relevant previous year (1.4.04 to 31.3.2008), he will be treated as non-resident (NR) for the tax year 2008-09.

If a person comes to India for the first time on or before 30th September 2008, he would be treated as resident but not ordinary resident (RNOR) for the tax year 2008-09.


Examples of Residential Status

An expatriate who is a resident and ordinary resident (ROR), his worldwide income from any source would be taxed in India whether received in or outside India.

An expatriate who is a resident but not ordinary resident (RNOR), income received in India or accruing/arising from a source in India or income derived from a business controlled or profession set up in India is liable to be taxed in India.

An expatriate who is a non-resident (NR), income received in India or accruing/arising from a source in India is taxed in India. Income received in India implies direct receipt of income and not its subsequent transfer.


Income Liable to be Taxed in India

Remuneration earned by expatriate employees for rendering services in India is taxed in India whether paid in or outside India.

Salary includes all amounts whether received in cash or kind, directly or indirectly including perquisites provided to an employee in connection with his employment. Other amounts received in the forms of fee, commission, bonus, allowances, reimbursement of personal expenses and benefits provided by the employer either free of cost or at concessional rates are also treated as salary if paid in connection of employment. It is not necessary to see who makes the payment or provides the benefits.

Cash components are fully taxable in India. Certain perquisites such as housing and furnishings are taxable on concessional basis.

Consequent to the introduction of the FBT, benefits like car, free meals, gifts, etc. are not taxed in the hands of employees but are subject to FBT. Telephone expenses paid by employer are not taxable in the hands of employees.

The benefits which are taxable in the hands of employees as perquisites are not subject to FBT. Similarly, benefits on which FBT has been paid by employer are not again taxed in the hands of employees.

Tax, if any, borne by an employer on non-monetary perquisites is not grossed up in the hands of employee but employer cannot claim such tax paid as an expense while computing its income.


Taxation Of Employment Income

Profits from business, profession, trade or vocation that are carried out within India are

taxable whether one is resident or non-resident. Such income is taxed at on net

profit basis after allowing all eligible deductions and allowance.


Taxation of Self Employment Income

Individual is taxed on his/her total income on a graduated scale. Tax rates for assessment year 2009-10 are:

Contd...


Personal Tax Rates & Method of Calculation

Income Range (Rupees/INR) Tax RateUp to 150,000 Nil150,001– 300,000 10% of (annual income minus

150,000)300,001- 500,000 INR 15,000 plus 20% of (annual

income minus 300,000)500,001 & Above INR 55,000 plus 30% of (annual

income minus 500,000)Notes:Plus Surcharge @10% of personal tax if income exceeds one Million INR;Education cess @ 3% on personal tax and surcharge.Certain tax concessions are available to ladies and senior citizens.

Capital Gains

Long term capital gains are taxed at a flat tax rate of 20% plus surcharge and education cess. However, long term capital gains on securities listed in India on which securities transaction tax has been paid, are exempt from tax.

Short term capital gains are taxed at normal tax rates but short term capital gains on securities listed in India on which securities transaction tax has been paid, are taxed @ 15% plus surcharge and education cess.


Personal Tax Rates & Method of Calculation

Normally, an expatriate coming to India for the first time may enjoy the status of RNOR for

initial 3 to 4 tax years depending upon his physical presence in India during that period. The

facts should be analyzed for each case to determine the residential status.

Many employers pay Indian tax of their seconded employees by using tax equalization but still

the primary liability to pay tax and to comply with other provisions of law remains with the

employees.

If an expatriate is a resident (ROR) in India in any tax year, his/her worldwide income will be

taxed in India. However, if such a person is also a resident of another country with which India

has signed Double Taxation Avoidance Agreement (DTAA), the residency aspect shall be

subject to tie breaker clauses of the relevant DTAA. A detailed analysis is suggested before

taking any position.

Employer is required to deduct/withhold taxes, as applicable, while making the salary

payments. Salary paid outside India for employment exercised in India is taxable in India and

also subject to tax withholding.

Contd..


Know More…

Expatriate employees should obtain valid Indian employment visa from his/her home country before entering India.

An expatriate employee should register himself with the concerned Foreign Registration Officer FRRO/FRO within two weeks of arrival in India and complete necessary formalities for such registration.

On arrival, an expatriate should apply to Indian tax authorities obtaining Permanent Account Number (PAN). It is a unique ten digit number which every tax assessee in India is required to apply and obtain.

Wealth tax is charged @ 1% on specified assets if taxable wealth exceeds INR 1.5 million. It is not of much significance for expatriates.


Know More…


Thanks

For further information, please visit PGA at www.pgaindia.in or E-mail: [email protected] or [email protected] or contact us at:

87-B, Masjid Moth – II, DDA Flats, Greater Kailash - III New Delhi - 110 048 (INDIA)Tel/Fax: +91 11 2922 3838, +91 98112 52946

CA. Parveen Gambhir

Documents

Expatriates Taxation in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide expatriates a general information regarding their taxation