India Entry & Business Startup Consultings

Transfer Pricing Study & Documentation

In India, the income received by foreign expatriates is believed to be received for services offered by him as per section 9(1) (ii) of the Income Tax Act. It is computable under the Income head ‘salaries'. It is clarified as that salary income payable for services provided in India and is considered as income earned in India.

Who is Expat or Expatriate?

Expatriates are persons who are residing in a country other than their country of origin, either temporarily or permanently. They are those workforces who are transported to their foreign offices for work.

Expat Tax in India

Expat Tax in India means that the residential status won’t make a change on the tax liability on the salary income earned by providing services in India. Rule 15 will be appropriate for the conversion of salary income in Indian currency. The telegraphic transfer procurement rate on the last day of the month in which the income is due or paid is taken as conversion rate.

TDS will also apply to the salary regardless of the place where the salaries are acknowledged. The salary is transformed into Indian currency in case paid in foreign currency, for computing tax deduction. The conversion is done at the telegraphic transfer procurement rate adopted by SBI on the date of the tax deduction. The above rule of change is only appropriate for TDS determination.

Who bears the Expat tax burden?

The tax burden is borne by the business of the expatriates and not the worker. Hence the idea of earning up of salary rises in the case of expatriate taxation. For instance, if the salary is Rs. 1000 and tax Rs. 200, then the total amount payable to expatriate will be Rs. 1200. Tax is payable on Rs. 1200 and not on Rs. 1000. Hence, the income of expatriates is considered as net income plus tax liability on it.

Rates of Taxation

The rates appropriate for expat tax are the slab rates for non-residents as per the Income Tax Act normally practices in the country. So, the Expat Tax in India is defined in the Income Tax Act of India.

Expat Tax India defines an Expatriate or expat is a person residing in a country, temporarily or permanently, which is dissimilar from his/her home country or you could say dissimilar from a country in which he/she is a resident. This term is mostly used in the context of professionals/technicians sent by their businesses to their related enterprises or foreign subsidiaries. Many people complicate expatriates with foreign citizen coming to India for employment, those are named immigrants and not expatriates.

How is foreign expatriate working in India?

Irrespective of the residential status of the expatriate worker, the amount received by him as salary, for services provided in India shall be liable to tax. In India salary accruing or arising are the focus of TDS regardless of the place where the salary is received.

Where salary of an expat tax in India is payable in foreign currency, the amount of the tax removed is to be calculated after converting the income payable into Indian currency at the telegraphic transfer procurement rate as adopted by State Bank of India on the date of deduction of tax (Rule 26) read with Section 192(6) of Indian Income Tax Act.

It may be noted that this rule is appropriate only for resolving income Tax in TDS. However, in calculating the salary income, the rate of conversion to be applied is the telegraphic transfer procurement rate on the last day of the month in which the salary is due or is salaried as per Rule 15 of Indian Income Tax Act.

Both the Indian Salary as well as the Foreign Salary of an Expatriate are accountable to Tax and Deduction of TDS.

Grossing up of Salary in case of Expatriate Taxation

The agreements related to expatriates are shaped in a way that tax burden is not on the expatriate but on the business to which he/she is sent. For instance when a Chinese Expatriate is sent to India, then the income tax load of that expatriate will be on the Indian Concern and not on the expatriate worker. This gives growth to the idea of grossing-up.

The expatriate worker gets the net salary and tax on this is made by the Indian company. Thus if the income given to the expatriate is Rs.100, presume the tax on it is Rs.30, Rs.30 will be made by the company. Now this will make the total amount paid to expatriate Rs.130, which has to be made by any individual on his salary in the normal course of taxation.

How ASC can assist you?

  • Structuring the business model for transfer of expatriate
  • Drafting of Secondment/Dispatch Agreement, Employment Agreement etc.
  • Providing assistance in obtaining VISA from Indian Embassy and necessary registrations/renewals in India.
  • Determination of residential status and calculation of Income tax Liability considering tax reliefs for income tax paid in home country.
  • Compliances for personal income tax return filing along with disclosure of foreign assets.
  • Obtaining statutory approvals at the time of exit from India Like Income Tax clearance Certificate, Exit Permit etc.

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