Expatriate tax ebook - India

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes
Deductions against income

Charge to tax
A charge to India tax is determined by the expatriate's tax residency position.

Residence
The taxation of individuals is determined by their residence status. Under the income tax act (the Act), an individual can have the status of a 'resident and ordinarily resident' (ROR), a 'non-resident' or a 'resident but not ordinarily resident' (RNOR). While a RNOR is not liable to tax on the income which accrues to him outside India (except income derived from a business controlled in or a profession set up in India), a ROR is liable to tax on his worldwide income. Non-residents are liable in respect of income received in India or which accrues or arises in India. They are not liable in respect of income accruing or arising outside India even if it is remitted to India.

Income from employment
Income under the heading 'salaries' includes remuneration in any form due for personal service under an express or implied contract of employment or service. The contractual relationship should be between the employer and employee. Income from 'salaries' is chargeable to tax on a 'due' or 'receipt' basis, whichever is earlier and includes wages, annuity or pension, gratuity, fees, commission, perquisites or profits in lieu of salary, advance salary, leave encashment etc.

Source of employment
Where duties are performed in India, any remuneration received in respect of these duties is treated as Indian source income and subject to Indian tax. Relief under the relevant double taxation agreement may apply.

Benefits (in kind)

Certain benefits are taxed in the hands of the employees as perquisite such as the value of rent-free accommodation, reimbursement of fuel and maintenance charges incurred on motor car, , provision of sweeper, watchman, gardener, watchman or personal attendant, supply of gas, electric energy or water for household, free or concessional educational facility for any member of employees household, interest free/concessional loan for housing, free food and non alcoholic beverages, gifts/vouchers or token to employees, membership fees and annual fess, use of movable assets (other than laptop), transfer of movable asset to employee, provision of Employee Stock Options Scheme (‘ESOP’) And other benefits, ameities or services.

Prescribed rules are laid down for the valuation of perquisites. Certain perquisites are taxable in hands of specified employees..

Expatriate concessions
Except for provisions dealing with short stay exemptions, no specific expatriate concessions are available under the Indian tax laws.

Relief for foreign taxes
Where income has been subject to tax twice; in India and a foreign jurisdiction, relief from double taxation may be available where provided for in the relevant double taxation agreement. Relief is also available to expatriates under Indian tax laws provided he or she fulfils the criteria of residency status during the year.

Deductions against income

Tax on employment (Profession Tax) is allowed as a deduction from salary income. In addition, the following are treated as allowances and exemptions are available from such allowances subject to the statutory conditions prescribed in this regard:

• pension,
• leave travel concession,
• gratuity,
• retrenchment compensation,
• voluntary retirement compensation,
• house rent allowance,
• leave encashment,
• medical benefits and certain special allowances,

Information about India:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities