Taxes for Expats in India

    Your complete guide to expat tax in India:

    Tax rates

    2017/2018 income tax rates

    Taxable Income Band INR National Income Tax Rates
    1 - 250,000 0%
    250,001 - 500,000 5%
    500,001 - 1,000,000 20%
    1,000,001 + 30%


    These rates are applicable up to the age of 60, thereafter until 80 years old, the first INR300,000 is taxed at 0%, and all other rates remain the same.  After 80, the first INR500,000 is taxed at 0%.

    An education 'cess' (a tax or levy) of 3% is levied on the tax payable.

    If total annual income is INR10 million or less the maximum marginal tax rate is effectively 30.9% (30% + 3% education cess).

    If total annual income is more than INR10 million, the maximum marginal tax rate on annual income is effectively 34.608% (30% + 12% surcharge + 3% education cess).

    This surcharge applies to individuals with total income in excess of INR10 million.

    Who pays

    Who pays tax in India?

    Resident expats are subject to tax on their worldwide income.

    Persons who are resident but not ordinarily resident are taxed only on Indian-source income, income deemed to accrue or arise in India, income received in India or income received outside India arising from either a business controlled, or a profession established, in India.

    Non-residents are taxed only on Indian-source income and on income received, accruing or arising in India.

    Non-residents expats may also be taxed on income deemed to accrue or arise in India through a business connection, through or from any asset or source of income in India, or through the transfer of a capital asset situated in India (including a share in a company incorporated in India) according to expat tax rules.

    How it works

    How is income taxed in India?

    In general, all income received or accrued in India is subject to tax.

    Employment income - All salary income relating to services rendered in India is deemed to accrue or arise in India regardless of where it is received or the residential status of the recipient.

    Expat employees of foreign enterprises who are citizens of foreign jurisdictions are not subject to expat tax if all of the following conditions are satisfied:

    • The foreign enterprise is not engaged in a trade or business in India.
    • The employee does not stay in India for more than 90 days in the tax year.
    • The compensation paid is not claimed by the employer as a deduction from taxable income in India.

    Similar exemptions are available under tax treaties if the stay is less than 183 days, but conditions vary. In general, most elements of compensation are taxable in India. However, certain benefits may receive preferential tax treatment.

    Self-employment and business income tax rules for expats - All individuals who are self-employed or in business in India are subject to tax.

    Business losses incurred in the current year can be set off against income under any other head except the salaries head. If business losses in the current year cannot be wholly set off, such business losses may be carried forward for 8 years if the income tax return for the year of the losses is filed on time. However, the losses carried forward can be set off against business income only. Unabsorbed losses from speculative transactions may be carried forward for 4 years only and can be set off against profits from speculative business only. Unabsorbed depreciation may be carried forward indefinitely.

    Expat investment income - Dividends are taxed in the following manner (all must be declared via expatriate tax returns):

    • Domestic companies are required to pay dividend distribution tax on profits distributed as dividends at a rate of 15% plus the applicable surcharge (7% [12% if income is greater than INR10 million]) and education cess (3%). Effective from 1 October 2014, dividends paid are grossed up for the purpose of computing dividend distribution tax. This will translate into an effective rate of 17.64% (approximately 20.358% including surcharge and education cess).
    • Dividend income earned from Indian companies is not taxable in the hands of the individual shareholders. Dividends received from foreign companies are subject to tax in the hands of shareholders at the normal tax rates.

    Interest earned on securities, investments, advances and bank deposits in India is assessable based on the relevant expat tax rules. Taxes are withheld at source by the banks, cooperative societies and post offices if the interest exceeds INR10,000 (INR5,000 in other cases) in the tax year except in certain specified cases. The rate of the withholding tax is 10% (plus cess).

    This withholding tax is not a final tax for expats.

    Interest earned on certain types of accounts is exempt from tax for non-residents but advice from an expat tax adviser should be sought before embarking upon expat tax preparations.

    Non-resident Indian nationals (including persons of Indian origin) may exercise an option to be taxed at a flat rate of 20% on gross investment income (without any deductions) arising from foreign currency assets acquired in India through remittances in convertible foreign exchange.

    Expat directors' fees - Directors' fees are taxed at the usual progressive rates. Tax is required to be withheld at source at a rate or 10% from directors' fees paid to residents. Expenses incurred wholly and exclusively for earning fees are allowed as deductions.

    Expat rental income - Rental income received by an individual from the leasing of house property (including buildings or land appurtenant thereto) is taxable at the value determined in accordance with specific provisions. The following deductions from such value are allowed according to expatriate tax rules:

    • Taxes paid to local authorities on such property
    • A sum equal to 30% of the value
    • Interest payable on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of property
    DTAs

    Taxes for expats in India: Double tax relief and tax treaties

    Tax treaties provide varying relief for tax on income derived from personal services in specified circumstances. In certain circumstances, the treaties also provide tax relief for business income if no permanent establishment exists in India. India has entered into comprehensive double tax treaties with 91 countries.

    If no double expat tax treaty applies, resident taxpayers may claim a tax credit on foreign-source income equal to the lower of the tax imposed by the foreign country or the tax imposed by India on the foreign income.

    Residency

    Expat tax advice on residency

    Expats are considered resident if they meet either of the following criteria:

    • They are present in India for 182 days or more during the tax year
    • They are present in India for 60 days or more during the tax year and present in India for at least 365 days in aggregate during the preceding 4 tax years (the 60 days' condition is increased to 182 days in certain cases).

    Individuals who do not meet the above criteria are considered to be non-residents.

    Individuals are considered not ordinarily resident if, in addition to meeting one of the above tests, they satisfy either of the following conditions:

    • They were non-resident in India in 9 out of the preceding 10 tax years.
    • They were present in India for 729 days or less during the previous 7 tax years.
    IHT

    Do I have to pay inheritance and gift tax?

    India does not impose tax on expat’s estates, inheritances or gifts.

    However, any sum of money received by an individual in excess of INR50,000 without consideration is taxable in the hands of the recipient.

    Finally on this point, do not assume that just because you've expatriated to live in India that your estate will not be liable to inheritance tax (IHT) in your old home nation, or any nation where you hold assets.  For example, those domiciled in Britain remain liable for IHT on their worldwide estate.

    If you are concerned about mitigating your IHT liability, we'd like to offer you a free initial consultation to determine whether we can help you.

    CGT

    Do I have to pay capital gains tax?

    Capital gains on assets other than shares and securities - Capital gains derived from the transfer of short-term assets are taxed at normal rates.

    Long-term capital gains for expats are gains on assets that have been held for more than three years. Long-term capital gains are exempt from expat tax in certain cases if the gains are reinvested within a prescribed time period.

    Capital gains on shares and securities listed on a stock exchange in India – Seek professional expat tax advice this applies to you. Long-term and short-term gains are treated differently under expat tax rules. A similar situation arises for capital gains on unlisted shares and securities in India – 20% (plus cess) may be applicable to expats and it is recommended that they seek professional expat tax help.
    State pension

    Do expats get a state pension?

    The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) contains the following schemes:

    • Employees' Provident Fund Scheme, 1952
    • Employees' Pension Scheme, 1995
    • Employees' Deposit-Linked Insurance, 1976

    The Ministry of Labour and Employment has issued a notification extending the applicability of the Provident Fund and Pension Scheme rules to a new class of employees called "International Workers." Under the EPF Act, the following employees are considered to be "International Workers":

    • An Indian employee (an Indian passport holder) who has worked or is going to work in a foreign country with which India has entered into a social security agreement and who is or will be eligible to avail of the benefits under a social security program of that country, in accordance with such agreement
    • A foreign national who works for an establishment in India to which the EPF Act applies

    An "excluded employee" is not covered by the EPF Act. An expat employee is considered to be an "excluded employee" if the following conditions are satisfied during expat tax preparation:

    • The employee is an International Worker who is contributing to a social security program of his or her country of origin, either as citizen or resident.
    • The employee's home country has entered into a social security agreement with India on a reciprocity basis and the employee is considered to be a detached worker under the social security agreement.

    India has entered into social security agreements with 13 countries with a further five agreements soon to come into force.

    Every covered employer is required to contribute 24% (12% each for the employer's and the employee's share) of the employee's “monthly pay” (as defined) towards the Provident Fund and Pension Fund. The employer has the option to recover the employee's share from the employee.

    For expat employees (including International Workers) who become members on or after 1 September 2014 and draw monthly salary exceeding INR15,000, the entire contribution is allocated to the Employees' Provident Fund.

    Local employees who draw a monthly salary of INR15,000 or more are excluded from the legislation, but this exclusion does not apply to International Workers even if the monthly pay of the employee exceeds INR15,000.

    Finally...

    We believe the above information is accurate, however tax rates and rules can change, and we are NOT tax experts.  Therefore, please do not rely exclusively on the information to determine your liability for tax.

    Speak to a local tax expert for personalised advice, or consult an international taxation consultancy.

    If you'd like our help to source someone to assist you, please get in touch and we will do all we can to help.

    Relax, and join the 10,000 other international investors who have made the smart decision to let us help.

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