Working in India - Indian Tax Implication for Expatriates

The income tax liability of an Individual in India depends upon his or her residential status in India i.e., resident or non–resident. The number of days for which an individual is physically present in India in a particular fiscal year, (the Indian fiscal year extends from 1 April to 31 March) as well as in the prior fiscal years, determines his or her residential status in India for the year under consideration.

Residential Status:

Under the rules of residence, an individual could either qualify as a resident or a non-resident. According to the tax laws, an individual is considered to be a tax resident if he or she is present in India for:

• 182 days or more in a fiscal year; or
• 60 days or more in a fiscal year and 365 days or more during the preceding four fiscal years. The 60 days may be extended to 182 days in certain cases.

The afore-mentioned conditions are termed as the basic conditions of residency.

Incidence of Tax in India:

The incidence of tax depends on the residential status of the individual. Typically, expatriates who are assigned to India for the first time for the first two to three years of their stay in India are taxable as follows:

1. Income received or deemed to be received in India
2. Income accruing/arising in India or deemed to accrue/arise in India

The salary for services rendered in India is deemed to be India-sourced income and, therefore, is taxable, irrespective of the place of receipt and the expatriate’s residential status. However, a safe harbour may be available under the Indian domestic tax laws (the 90-day rule) or the DTAA between India and the home country. There are prescribed conditions that need to be satisfied in both cases.

International Tax Treaty:

Where an individual is treated as a tax resident of another country, he or she may qualify for relief from Indian tax under a double taxation agreement between that country and India. Most current agreements lay down various tests to determine in which of the two countries an individual is a resident for treaty purposes.

Most agreements contain clauses, which exempt a resident of one country from tax on employment income in India if he or she is present in India for less than 183 days in a tax year, and if some other conditions regarding the salary chargeback and payment of salary by a non-resident etc. are satisfied (short stay exemption). Where the individual is coming from a non-treaty country, short stay exemption is available under the domestic tax law, provided the individual’s stay in India during the tax year does not exceed 90 days and certain other conditions are met.

Income Tax Rates:

The tax rates for the fiscal year 2019–20 for an individual are as follows:

Slab (Income INR)	Tax Rate
Income 0 - 250,000	0%
Income 250,001 - 500,000	5%
Income 500,001 - 1,000,000	20%
Income Above 1,000,000	30%

 

A surcharge of 10% is also levied on the income of more than INR 5,000,000 but less than INR 10,000,000 and 15% on the income more than INR 10,000,000. Health and education cess of 3% is levied on the income tax (including surcharge, if any).

Tax Registration:

An individual needs to apply for and obtain the tax registration called permanent account number (PAN). PAN is required to file the tax return and also needs to be reported in the tax withholding returns or certificates. The PAN is mandatory, and the law prescribes a tax withholding at the higher of the prescribed rate or 20% if the individual’s PAN is not available.

Withholding Tax:

In respect of employment income, the employer will be required to withhold tax on the earnings from salary at applicable rates and hand over the same to the Government’s treasury within seven days from the end of the month during which salary is paid (except for March wherein the timeline is extended to 30 April). This is applicable even if the employer is not resident in India.

Tax Return Filling:

At the end of each year, a tax return must be filed with the income tax authorities in the prescribed form. The due date for filing of return is 31 July of the relevant assessment year. However, a belated return can be filed before the expiry of the relevant assessment year.