India Entry & Business Startup Consultings

Expatriate Tax

With the globalization of business operations of the multinational groups, employees of these multinational groups also become global, not remaining within the boundaries of one country. These employees, often referred to as ‘Expatriates’ are mobilized into other countries in order to optimize their potential. With this, the concept of ‘Expatriate Tax’ emerged. 

India has been the preferred investment destination for multinational groups for the purpose of the expansion of its business operations given its market potential. With this, there is also a substantial increase in the number of employees or expatriates coming to India for short or long-term assignments. The purpose of these assignments may vary from sharing technical prowess to implementation of new projects etc. 

The mobilization of these employees or expatriates often poses significant tax and regulatory risks before these multinational groups, and this necessitates adequate preparation and planning in respect of the Expat tax and regulatory framework in India. 

The income earned in India by these employees or expatriates is taxable in India and after three or four years of their first arrival, the global income of these employees or expatriates may be liable to tax in India along with the reporting of all the assets and liabilities owned or held by employees or expatriates whether in India or outside India. Therefore, it is important for these employees or expatriates to understand the expatriate tax aspects of the income arising from employment. This necessitates the need for planning at the initial stage itself. 

Our team of Expat Tax professionals assists multinational groups in the mobilization of their resources by devising strategies as per the needs of the groups in an efficient and regulatory compliant manner. 

How does ASC help in regards to Expatriate Tax?

  • Planning and advisory on the structure of the assignment based on the specific needs of the companies;
  • Planning and advisory on a suitable structure so that the risks related to the permanent establishment and base erosion profit shifting can be addressed;
  • Review of secondment contracts and other compliance requirements
  • Expat Tax firms assist companies in applying for visa/work permits for their expatriates in India; 
  • Expat Tax professionals advice on the secondment agreements and cost recharges for such agreements, both from the withholding and transfer pricing perspective;
  • Briefing expatriate tax service from their arrival into India till completion of the assignment, on various issues;
  • Expat Tax professionals advice on various exemptions/benefits that may be available under the tax laws and provisions of the Double Taxation Avoidance Agreement;
  • Advising expatriates on their eligibility to claim foreign tax credits and the nature of documents required for claiming such tax credits from tax laws perspective;
  • Assisting companies in obtaining registrations from the tax and other authorities;
  • Monthly computation of withholding tax of the employees and other social security contributions like provident fund etc.;
  • Filing return of income of the expatriates in India;
  • Obtaining a no-objection certificate from the Indian Tax Authorities for the expatriates on their departure from India;
  • Representation before the tax authorities in case the return of income is selected for audit/scrutiny and litigation support up to the Supreme Court. 

Frequently Asked Questions

Q
Which income of an expat is taxable in India?
A

The taxability of an expat’s income is dependent upon his residential status. In case the expat is ‘resident’ in India as per the income tax law, then the global income of such expat is taxable in India. In case the expat is a ‘non-resident’ or ‘resident but not ordinarily resident’, then in such cases, only the income deemed to be received in India or income deemed to accrue or arise in India shall be taxable.

Q
Who is liable to pay expat tax – employer or employee?
A

While it depends upon the organization’s policies, it is usually noticed that the employees are not well-versed with the taxation laws of the country in which they are working as an expat. Therefore, the employers in such cases undertake taxation compliance on behalf of the employees. In India, Form 30A is filed by the employer in case he undertakes to bear all the tax compliances on behalf of the expat employees. 

Q
How to deal with double taxation in the case of salaried expats whereby both the resident country and country of employment are charging tax?
A

In the case of double taxation, it needs to be examined whether there is a DTAA between the resident country of the expat and India. If there is one, then the expat employee can claim relief as per the provisions of DTAA. 

Q
What are the tax rates in India for individual expats?
A

For individual expats earning salary income in India, tax rates applicable shall be as follows:

Income of the Individual (Rs.)

Tax Rate Applicable*

0 – 2,50,000

-

2,50,001 – 5,00,000

5%

5,00,001 – 10,00,000

20%

Above 10,00,000

30%

*Subject to applicable surcharge and cess

  • Non-resident individuals are not eligible for rebate under Section 87A of the income tax act.
  • Different tax rates are applicable in the case of income under the head ‘Capital Gains’.

The amount of tax payable by the expat is subject to residential status as well as DTAA.

Q
What is the due date for filing income tax return for expats? Is there any extension available?
A

The due date for filing income tax return of expats (for non-audit cases) is 31st July after the end of the financial year (i.e., 31st March). However, expats are required to intimate about their tax compliances to Foreigners Regional Registration Office (FRRO). Therefore, the expats shall file their returns within the original due dates unless the FRRO provides an extension along with the extension granted by the income tax department.

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