Income Tax implications in the Case of Expats in India

Expats are those people who are seconded or deputed to the sister concerns whether in the same country or another country. One of the key aspects of such an arrangement is the legal and taxation analysis for expats. For instance, suppose an employee is working in a foreign entity and is seconded to its Indian branch. Thus, such an employee will not only be covered under the taxation laws of his home country but also under the Indian taxation laws. However, what do the Indian laws state for Taxes of Expat’s in India? How are expats taxed in India in case of Personal Income Tax? Let’s find out!

Taxes of Expat’s Income in India

For determining whether the expat is liable to tax in India or not, we need to look at the residential status of such expat. The matrix of taxability of expats income based on residential status is as hereunder:

Given that, it is important to determine the residential status of the expats in India. It is governed by Section 6 of the Income Tax Act, 1961. Let’s decode the expats’ residential status.

Residential Status of Expats in India

The residential status of the expats can be classified into 3 categories:

1. Resident
2. Resident But Not Ordinarily Resident
3. Non-Resident

The following are the provisions that are key to determining the residential status of expats in India:

1. Resident in India [Section 6(1)]

An individual shall be considered as resident in India if

1. he is in India for 182 days or more or
2. he was in India for 365 days or more in the four years preceding the current year and 60 days or more in the current year.

2. Resident But Not Ordinarily Resident in India [Section 6(6)]

An individual shall be considered as resident but not ordinarily resident if:

1. He was non-resident in India in 9 out of 10 previous years preceding the current year or
2. During the 7 years preceding that year has been in India for 729 days or less

3. Non-Resident

All the other individuals that fail to satisfy the conditions prescribed under Section 6(1) or 6(6) of the Income Tax Act, 1961 shall be classified as non-resident in India.

Thus, whether the expat’s income will be taxable in India or not and if yes, then which portion of his income will be taxed depends upon the residential status under which such expat falls.

Double Taxation of Expat’s Income

The expat’s income might be subject to jurisdictional double taxation whereby both the home country and the source country would levy taxes on the same income. The expat seconded to India will be subject to Indian income tax because the income was earned in India. Also, such expat will also be taxable for the same income under his home country’s tax law because that is the home country where he is resident. 

To avoid such instances of double taxation, Double Taxation Avoidance Agreements (DTAAs) are entered into between the nations. DTAAs lays down broad provisions relating to the incomes that are liable to tax and which countries are authorised to tax which income. Further, in India, the provisions of DTAA override the provisions of the Income Tax Act, 1961 if they are more beneficial to the assessee. Thus, while determining the tax liability of the expats, it is important to consider the provisions of both the taxation laws of the respective nations and the DTAA entered into between them if any.

Following were the key aspects of the taxes for expats in India. In case you need any assistance in determining the expat’s tax implications, feel free to contact the ASC Group.
 

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