Income Tax for Expatriates Working In India
With Increasing globalization, human capital or in simple terms employable people, now get opportunities to work across countries and continents. India is no exception to this emerging trend.
Foreign Expatriates working in foreign companies which have opened operations in India. The most striking examples are Multinational Automotive Companies like Volkswagen, Ford, Skoda, Hyundai, Proton, BMW and many more of them. In fact there are hundreds of such examples in many sectors like Automotives, Heavy Engineering, Technology Services, Consultancy Services, Prototype Design & Development (D&D) Services, Telecom Companies etc.
Foreign Expatriates who are working in Indian Corporates and Indian Companies.
Foreigners who are working in Consulates and Embassies. Essentially, these are covered under Diplomatic Services. Irrespective of their rank or in simple terms, the designation and the post they hold, they all come under the Diplomatic Category Cover.
Indian Income Tax Applicable to foreign expatriates in Category 1 and Category 2
In case of a foreign expatriate working in India, the remuneration received by him, assessable under the head ‘Salaries’, is deemed to be earned in India if it is payable to him for services rendered in India as provided in Section 9(1)(ii) of the Income Tax Act. The explanation to the aforesaid law clarifies that income in the nature of salaries – payable for services rendered in India shall be regarded as income earned in India. Further, from assessment year 2000-01 onwards income payable for the leave period which is preceded and succeeded by services rendered in India and forms part of the service contract shall also be regarded as income earned in India.
Thus, 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.
Indian Income Tax Applicable in case of payment of salary in foreign currency
Where salary 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.
It may be noted that this rule is applicable only for determination of Income Tax in TDS. However, in computing the salary income, the rate of conversion to be applied is the telegraphic transfer buying rate on the last day of month in which the salary is due or is paid as per Rule 15 of Indian Income Tax Act.
Indian Income Tax Laws for Category 3
As per Section 10(6) (ii) of Indian Income Tax Act, The remuneration as officials or as members of the staff of Embassy, high commission, legation, commission, consulate or trade representatives of a foreign Country are fully exempt from Indian Income Tax. However for such members of staff to enjoy the said exemption, it is necessary that they are the subjects of such foreign Country and are not engaged in any other business or profession or employment in India. Remunerations as Trade Commissioner or other official representative is exempt from Indian Income Tax Laws on reciprocal basis i.e. only if their Indian counter-parts enjoy similar benefits in that country.
While discussing the above, it becomes necessary to mention about an agreement called DTAA whose full form is Double Taxation Avoidance Agreement. The Government of India acting under the authority of Income Tax Law (Sec. 90) has entered into DTAAs with more than 60 countries. Such treaties serve the purpose of providing protection to the Indian 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 that they are more beneficial to the assessee. The provisions of these DTAAs thus prevail over and above the statutory provisions. However it must be said that this provision does not apply to any of the above mentioned three categories of foreign Expatriates. It is applicable for Indian Expatriates working abroad in certain specified categories of professions. This will be discussed in a separate article.