Taxation of Expats

Meaning of Expatriate or Expat

An expatriate is a person provisionally residing and employed in a different country while a remaining citizen of his native land. The taxation of such expat employees requires a slightly modified computation than the tax computed for a routine employee of an Indian organisation.

Foreign Expat Working in India:

For any foreign expat employed in India, the salary is deemed as earned in India, if they are paid for the services rendered in India as per Section 9(1) (ii) of the Income Tax Act. The said rule is suitable irrespective of the resident status of the expat employee. Besides, the income earned is subjected to tax deducted at source (TDS) regardless of where the salary is credited. It means that even if the salary is credited in the home country of the expat employee, it is still subjected to the Indian TDS.
 
In such cases, if the salary is paid in foreign currency in the country of expat’s citizenship then, such salary is turned into Indian Rupees (INR) and tax is computed on total Indian currency value. The rate used to calculate tax applicable is telegraphic transfer buying rate used by State Bank of India (SBI). The rate used is the rate on which tax is calculated on that day based on the Deduction of tax (Rule 26), Section 192(6) of the Indian Income Tax Act.

Tax Grossing up:

When the foreign expat receives salary, only net salary after the tax gets credited to his account. Indian company where he has taken up the scheme will pay the tax applicable for his income earned which indicates that an expat’s salary is calculated as the sum of the net salary and tax liability on it. This is known as tax grossing-up.

Computation of Tax on Expat’s Salary:

In India, the higher income tax rate is 30%. Over this 30% tax rate, 4% health and education cess is levied on cumulative total income tax rate to 31.2%. 

Avoidance of Double Taxation:

In the cases of expat, there is always a chance of double taxation in each of the country where the employee is a resident and his / her worldwide income is taxable. 
 
In some cases, where the income is earned in any country, but it is not on the list of DTAA. The tax has been paid in the said country in accordance with Section 91, he/she will be entitled to a deduction from the income tax in India payable by the expat employee for the sum computed on taxed income at Indian rate of Income-tax or the tax in the country where the income is earned, whichever is lower.
 
Taxation of expats in India is a crucial matter and our expat professionals are skilled in providing various services associated with repatriation assistance for employees, annual tax equalisation calculations, services tax compliance services, tax return preparation as well as assessment, appeal, opinions and litigation matters.

 We, here at MAG, provide taxation services to expatriates and assist you by providing numerous other services as well like accounting and bookkeeping, auditing & assurance, internal audit, tax audit, management audit, statutory audit, stock audit, income tax, tax planning, direct taxes, indirect taxes, etc. If you are an expatriate India and are looking for an expert in the matters of expat tax, you may reach us at info@manishanilgupta.com.