INCOME TAX ON EXPATRIATE INCOME IN INDIA
Who is Expatriate?
An individual living in a country other than their country of citizenship, often temporarily and for work reasons.
Scope of Taxation
Based on the residential status of payer, his tax liability will be as follows:-
|(i) Resident||All income of the previous year wherever accruing or arising or received by him including incomes deemed to have accrued or arisen.|
|(ii) Non-Resident||All income accruing, arising to or deemed to have accrued or arisen or received in India.|
|(iii) Resident but not ordinary Resident||All Income accruing or arising or deemed to have accrued or arisen or received in India. Moreover, all income earned outside India will also be included if the same is derived from a business or profession controlled or set up in India.|
Irrespective of the residential status of the expatriate employee, the amount received by him as salary, for services rendered in India shall be liable to tax in India being income accruing or arising in India, and also be subject to TDS regardless of the place where the salary is actually received.
Where salary of an expat is payable in foreign currency, the amount of the tax deducted is to be calculated after converting the salary payable into Indian currency at the telegraphic transfer buying 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.
However, there are certain exceptions are as follows:-
- Remuneration of an employee of a foreign enterprise is exempt from tax if his stay in India is less than 90 days in aggregate during the financial year [Sec.10(6)(vi)]. This is subject to further relaxation under the provisions of Double Taxation Avoidance Agreement entered into by India with the respective country.
- Remuneration received by a foreign expatriate as an official of an embassy or high commission or consulate or trade representative of a foreign state is exempt on reciprocal basis [Sec.10(6)(ii)].
- Remuneration from employment on a foreign ship provided the stay of the employee does not exceed 90 days in the financial year [Sec. 10(6)(viii)].
- Training stipends received from foreign government (Sec.10(6)(xi)).
- Remuneration under co-operative technical assistance programme or technical assistance grants agreements (Sec. 10(8) & (10(8B)).
Double Taxation Avoidance Agreement (DTAA)
The Central Government acting under the authority of Law(Sec. 90) has entered into DTAAs with more than 60 countries. Such treaties serve the purpose of providing protection to the tax payers from double taxation. As per section 90(2), in relation to an assessee to whom any DTAA applies, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. The provisions of these DTAAs thus prevail over the statutory provisions.
Tax rates in India
Where the taxable income does not exceed Rs. 2,50,000/-. : NIL TAX
Where the taxable income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-. : 10% of amount by which the taxable income exceeds Rs. 2,50,000/-.
Where the taxable income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-. : Rs. 25,000/- + 20% of the amount by which the taxable income exceeds Rs. 5,00,000/-.
Where the taxable income exceeds Rs. 10,00,000/-. : Rs. 125,000/- + 30% of the amount by which the taxable income exceeds Rs. 10,00,000/-.