Pwc report foreign national working in india 2003
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This document summarizes taxation laws for foreign nationals working in India. It discusses that employment income earned in India is taxable in India regardless of payment location. Housing and car benefits provided by employers are taxed at nominal values lower than actual costs. Other benefits like domestic help and utilities are fully taxable based on employer costs. The tax year runs from April 1 to March 31. Individual tax rates are progressive and residential status determines worldwide income taxability.
![A resident individual not satisfying any of the above two [(i) and (ii)] conditions is
treated as ROR.
By practical implication, an expatriate coming to India for the first time may
remain RNOR for first 3 tax years. However, facts and circumstances need to be
analysed for each case for determining the residential status.
Step 2 : Understanding the Indian tax system
The taxation of employment income
5.1 Remuneration income earned by the expatriates for rendering services in India is
deemed to accrue in India irrespective of the place of payment. Salary includes
both cash components and benefits provided to an employee for performing
services in India.
5.2 Cash component of salary is taxable in full but certain benefits like housing and
car are taxable at a value far lower than the actual cost incurred by the employer
for providing these benefits.
Housing
6 Housing is generally taxed at 10% of salary or rent paid for the accommodation
whichever is less. Hotel accommodation is taxable at 24% of salary or amount
paid whichever is less. Cost of meals and laundry expenses are fully taxable.
Accommodation provided in remote area to employees working in mines, project
execution sites etc. is not taxable.
Motor car
7 Motor car provided by employer is taxable at Rs. 1,200/1,600 per month
(depending on the cubic capacity of the car) if the car is available for both official
and personal use of the employee. Provision of chauffeur by the employer is also
concessionally taxed at Rs. 600 per month. In case more than one car is provided
by the employer, one car is taxable at the nominal value but all costs incurred by
the employer for second and subsequent cars are fully taxable.
Other perquisites
8.1 Most of other benefits or amenities (domestic servant, utilities, children education
etc.) provided by the employer are fully taxable on the basis of cost to the
employer. Telephone expenses including mobile phones are not taxable.
8.2 The passage fare paid to the foreign employees for their proceeding on home
leave is fully taxable.
8.3 Reimbursements made by the employer to the employee for, use of club facilities,
credit card expenses etc. are not taxable provided specified documentation is
maintained.
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Pwc report foreign national working in india 2003
- 1. Foreign Nationals Working in India
- 2. Foreign Nationals Working in India PricewaterhouseCoopers New Delhi India October, 2003
- 4. This booklet is prepared by PricewaterhouseCoopers to provide foreign nationals going to work in India with a broad view of tax laws. It reflects the current tax law or practice in India as at October 2003. This booklet is not intended as a comprehensive or exhaustive study, but merely as an explanatory guide. We would strongly recommend readers to seek professional advice before making any decisions. For further information, please contact the PricewaterhouseCoopers office in India (See Appendix D) © PricewaterhouseCoopers — 2003
- 6. Contents Step 1 : Understanding the basic principles The scope of taxation .......................................................................................................... 1 The tax year ......................................................................................................................... 1 Method of calculating tax ..................................................................................................... 1 Determination of residential status ....................................................................................... 1 Step 2 : Understanding the Indian tax system The taxation of employment income .................................................................................... 2 Housing ................................................................................................................................ 2 Motor car ............................................................................................................................. 2 Other perquisites .................................................................................................................. 2 Social security and pension plans ......................................................................................... 3 Stock options ........................................................................................................................ 3 Exemptions and deductions .................................................................................................. 3 Obligations of the Employer-regulatory ................................................................................ 3 Obligations of the Employer-tax ........................................................................................... 4 Step 3 : What to do before you arrive in India Work permits ........................................................................................................................ 4 Step 4 : What to do after you arrive in India Seek registration with FRRO ................................................................................................. 5 Registration with income tax authorities ............................................................................... 5 Advance tax ......................................................................................................................... 5 Step 5 : What to do at the end of the tax year Filing of income tax return .................................................................................................. 5 Step 6 : What to do at the time of departure .................................................................................... 5 Step 7 : Other matters requiring consideration Scope for tax planning .......................................................................................................... 6 Payment of salaries outside India .......................................................................................... 6 Acquisition of immovable property ...................................................................................... 6 Investment in shares/debentures ........................................................................................... 6 Remuneration ceiling ........................................................................................................... 6
- 7. Appendix A : Income tax slabs for 2003-04 ........................................................................... 7 Appendix B : Illustration of computation of income and tax thereon ...................................... 8 Appendix C : Countries with which India currently has the agreements for avoidance of double taxation ................................................................................................... 9 Appendix D : PricewaterhouseCoopers offices and contacts .................................................. 10
- 8. Step 1 : Understanding basic principles The scope of taxation 1 Tax incidence of an individual solely depends upon his residential status. If an individual is resident and ordinarily resident, worldwide income of the individual is liable to tax in India. If an individual is resident but not ordinarily resident, income received in India or accruing/arising from a source in India or income derived from a business controlled or profession set up in India is liable to tax in India. If an individual is considered non- resident, income received in India or accruing/arising from a source in India is liable to tax in India. There is no special tax regime for expatriates. The tax year 2 The Indian tax year commences on 1st April and ends on 31st March of the succeeding year. Method of calculating tax 3 Individuals are taxed on a graduated rate basis after certain deductions and allowances. (See Appendix A) Determination of residential status 4 Residential status of an individual can be classified as under: i Resident in India • Resident and ordinarily resident (ROR), and • Resident but not ordinarily resident (RNOR). ii Non-resident in India (NR). An individual is treated as resident in India if any one of the following conditions is satisfied: (a) Stay in India exceeds 182 days or more in any tax year; or (b) Stay in India exceeds 60 days in the relevant tax year and 365 days in aggre- gate in the 4 tax years immediately preceding the tax year in which residential status is determined. If none of the above conditions are fulfilled, the individual is treated as NR. It is not essential for the stay in India to be continuous or at the same place. A resident individual is treated as resident but not ordinarily resident (RNOR) of India if he satisfies any one of the following conditions: (i) NR of India in at least 9 out of 10 tax years preceding the tax year in which residential status is being determined; OR (ii) Physically present in India for 729 days or less during 7 tax years preceding the tax year for which residential status is being determined. 1
- 9. A resident individual not satisfying any of the above two [(i) and (ii)] conditions is treated as ROR. By practical implication, an expatriate coming to India for the first time may remain RNOR for first 3 tax years. However, facts and circumstances need to be analysed for each case for determining the residential status. Step 2 : Understanding the Indian tax system The taxation of employment income 5.1 Remuneration income earned by the expatriates for rendering services in India is deemed to accrue in India irrespective of the place of payment. Salary includes both cash components and benefits provided to an employee for performing services in India. 5.2 Cash component of salary is taxable in full but certain benefits like housing and car are taxable at a value far lower than the actual cost incurred by the employer for providing these benefits. Housing 6 Housing is generally taxed at 10% of salary or rent paid for the accommodation whichever is less. Hotel accommodation is taxable at 24% of salary or amount paid whichever is less. Cost of meals and laundry expenses are fully taxable. Accommodation provided in remote area to employees working in mines, project execution sites etc. is not taxable. Motor car 7 Motor car provided by employer is taxable at Rs. 1,200/1,600 per month (depending on the cubic capacity of the car) if the car is available for both official and personal use of the employee. Provision of chauffeur by the employer is also concessionally taxed at Rs. 600 per month. In case more than one car is provided by the employer, one car is taxable at the nominal value but all costs incurred by the employer for second and subsequent cars are fully taxable. Other perquisites 8.1 Most of other benefits or amenities (domestic servant, utilities, children education etc.) provided by the employer are fully taxable on the basis of cost to the employer. Telephone expenses including mobile phones are not taxable. 8.2 The passage fare paid to the foreign employees for their proceeding on home leave is fully taxable. 8.3 Reimbursements made by the employer to the employee for, use of club facilities, credit card expenses etc. are not taxable provided specified documentation is maintained. 2
- 10. Social security and pension plans 9 India does not have social security law in place. Certain statutes providing for employees benefits are mandatorily applicable only for employees drawing salary not more than Rs. 6,500 per month. The tax laws in India do not provide for any special provision for taxation of contributions, if any, made by the employer towards social security or other pension/benefit schemes of their home country. A detailed study of such schemes should be carried out to analyze the point of tax incidence of contributions made by the employer. Stock options 10 Income arising under a qualified stock option scheme is taxable only at the time of sale of shares. However, stock option income arising under an unqualified stock option scheme is taxable as salary income at the time when the options are exercised and subsequently as capital gains at the time of sale of shares. A detailed study of stock option plan should be carried out to analyze the tax incidence. Exemptions and deductions 11.1 Remuneration paid to an employee of foreign company who is not citizen of India for rendering services in India is not taxable if his stay in India does not exceed 90 days during the tax year and the following conditions are satisfied : (a) His employer is not engaged in business in India and (b) Remuneration paid to the individual is not deductible in computing the taxable profits of the employer in India. 11.2 Tax borne by employer is considered as additional income received by the employee and the amount is grossed up in the hands of employee except for the tax liability borne by employer on non-monetary perquisites. However, corporate tax deduction is not allowed in respect taxes so paid. 11.3 Deduction in respect of interest from Indian bank is allowed subject to maximum of Rs. 12,000. 11.4 Working women who are resident in India and below 65 years of age are allowed tax rebate of Rs. 5,000. 11.5 Individuals resident in India and above age of 65 years are allowed tax rebate of Rs. 15,000. 11.6 A standard deduction of Rs.20,000 is allowed on salary income exceeding Rs.500,000. Obligations of the employer-regulatory 12.1 Under the provisions of Foreign Exchange Management Act, Foreign Company is required to obtain approval from RBI for setting up an office in India. All Foreign Companies intending to depute their expatriate employees in India must review their business model to evaluate whether such deputation will tantamount to setting up an office in India. If that is the case, application must be filed with RBI before setting up office/deputation of employee. 3
- 11. 12.2 After the office is set up, the Company is required to be registered with the tax and Company law authorities. 12.3 Representative offices of Foreign Companies operating in India are required to open and fund bank account in India through the inward remittances brought from Head Office and meet all the expenses of Indian office from this account. The local office is required to maintain books of accounts in India and get them audited on an annual basis. Obligations of the employer-tax 13.1 Under the provisions of Indian tax laws, the employers are required to deduct taxes at source from the employees’ salary and deposit the same with the government treasury on a month to month basis. Delay in depositing taxes attracts penal interest. As soon as employee commences his assignment, tax based on estimated income should be calculated and deposited with the treasury. 13.2 The requirement of deduction and deposit of taxes is applicable in all circumstances even when the Company has not set up an office in India. 13.3 Payers are required to deduct taxes at prescribed rates while making contractual payments such as rent, payments to contractors, payment for professional services, payments to non-residents etc at the specified rates ranging from 1.025% to 20.5% depending on the nature of payments. 13.4 Certain annual reporting obligations have been imposed on the employer : - To file form 24 annually listing the salary and taxes paid to all the employees. - To issue form 16 outlining the salary and taxes paid in respect of all employ- ees working in India on annual basis. - To issue form 12BA disclosing the benefits paid to all the employees. - To file certain returns with the tax authorities reporting the payments where taxes have been deducted at source. 13.5 Under the tax laws, the employers are liable to interest and penalty for short withholding of taxes. Hence the employers are advised to collect and keep all the relevant data used for calculating tax withholding. Step 3 : What to do before you arrive in India Work permits 14.1 Foreign nationals visiting India for employment must hold a valid employment visa. The Indian High Commission located in various countries issues visas. There are no work permit requirements. Business/tourist visas are usually not convertible into employment visa while in India. There is no separate work permit requirement in India. 14.2 Current exchange control regulations do not permit the remittance of salary outside India unless the employees come on an employment visa. 4
- 12. Step 4 : What to do after you arrive in India Seek registration with FRRO 15.1 Foreign nationals including their family members who intend to stay in India for more than 180 days have to get themselves registered with the Foreign Regional Registration Office (FRRO) within 2 weeks of arrival into India. For the purposes of registration, the persons are required to make an application in the prescribed form and be present in person at the time of registration. The following documents are required to be submitted along with application: - Application form in quadruplicate - Passport and visa in original - 4 passport size photographs - Proof of residence - Copy of employment contract and undertakings by the employer 15.2 No registration fee is charged by the FRRO for registration of the foreign nationals. Registration with income tax authorities 16 Employees are required to seek tax registration (Permanent Account number). Advance tax 17 In case of ROR ,a foreign national having any income earned outside India other than salary income, is required to pay advance tax in as follows : - Before September 15, each year, 30% of total annual tax - Before December 15, each year, 60% of total annual tax - Before March 15, each year, 100% of annual tax. Annual tax for this purpose is annual tax liability as reduced by the tax deduced at source. Delay or failure to pay taxes in the aforesaid manner attracts payment of interest. Step 5 : What to do at the end of the tax year Filing of income tax return 18 Employee must file a return of income before 31st July of each tax year even if all the taxes have been deducted at source. Step 6 : What to do at the time of departure 19 At the time of departure from India, employee is required to furnish with the Income tax authorities, an undertaking from the employer to the effect that the tax payable by employee shall be paid by employer. On the basis of said undertaking income tax authority will grant a “No Objection Certificate” to leave India. 5
- 13. Step 7 : Other matters requiring consideration Scope for tax planning 20 Professional advice may help to reduce your Indian tax burden and may also save tax in your home country. It is therefore, important that before coming to India you seek detailed professional advice on the preparation of your employment contract. Payment of salaries outside India 21.1 Foreign nationals/ Indian citizens who are employees of foreign company and on deputation to India are allowed to hold and maintain a foreign currency account with a bank outside India and receive salary into his overseas account. However, such receipt into overseas account must not exceed 75% of the salary received from the Foreign Company and the remaining salary must be paid in rupees in India. Any direct payment in excess of 75% of the salary into the overseas account will require specific prior permission of the RBI. 21.2 Foreign nationals/ Indian citizens can repatriate the entire amount of net salary (gross salary less Indian taxes and statutory contributions, if any) received in India directly through their bankers, provided: - such remittance is for maintenance of close relatives (parents, spouse and children) abroad, and - employment is for a specific duration (irrespective of length) or for a specific job or assignment the duration of which does not exceed 3 years Acquisition of immovable property 22 Foreign nationals resident in India can acquire immovable property in India but would require prior permission of RBI to repatriate the sale proceeds of such property outside India. Investment in shares/debentures 23 Foreign nationals can invest in shares / convertible debentures of Indian Companies in accordance with the Foreign Direct Investment laws. Remuneration ceiling 24 Expatriates seconded to India are sometimes appointed as managing director or directors of Indian Companies. Under the Indian Companies Act, there are ceilings on the appointment of and salary paid to managing director or directors of public Companies. Prior approval is required in case managerial remuneration is to be paid to such individual beyond the prescribed limits. 6
- 14. Appendix A : Income tax slabs for 2003-04 1. Individual Tax Residents / Not Ordinary Residents and Non Residents Income Tax Rate Upto Rs.50,000 Nil Rs.50,001 to Rs.60,000 10% Rs.60,001 to Rs.150,000 20% Rs.150,001 and above 30% 2. Capital Gains Tax Particulars Tax rates Resident Non-residents Short Term capital assets Normal rates per Normal Rates per (1) above (1) above Long term capital assets- 20% (Notes 1) 10% being listed shares or securities in an Indian co. Other long term capital asset 20% 20% Notes: 1. Short-term capital asset is one, which is held for a period of not more than three years (one year in case of shares/securities). 2. Surcharge would also be applicable (@ 10% of tax ,in case of individuals whose taxable income exceeds Rs. 850,000). 3. Indexation of cost of acquisition and improvement of a long-term capital asset of any nature is available to Residents. However, the benefit of indexation is available to non residents only on long-term capital assets other than listed shares or securities in an Indian company. 7
- 15. Appendix B: Illustration of computation of income and tax thereon Individual - Computation of income Financial year ending 31st March, 2004 Particulars Amount (Rs.) Base salary and allowances 1,000,000 Bonus 500,000 1,500,000 Perquisites Tax borne by the employer 780,540 Rent free accommodation 150,000 Car with driver 26,400 Home Leave 15,000 Total 2,471,940 Less: Standard deduction 20,000 Taxable Income 2,451,940 Tax thereon 709,582 Add: Surcharge @ 10% 70,958 Total tax liability 780,540 Notes: 1. Rent free accommodation The assessee is entitled for rent-free accommodation. The taxable value of the perquisite is considered as under : Amount (Rs.) Lease rent @ Rs 50,000 per month 600,000 10% of salary 150,000 Lower of 10% of salary or rent paid for accommodation is taxable 150,000 2. Car Perquisite valued @ Rs. 2200 per month. 8
- 16. Appendix C : Countries with which India currently has the agreements for avoidance of double taxation. Australia Morocco Austria Namibia Bangladesh Nepal Belarus Netherlands Belgium New Zealand Brazil Norway Bulgaria Oman Canada Philippines China Poland Cyprus Portugal Czech Republic Qatar Denmark Romania Finland Russia France Singapore Germany South Africa Greece Spain Hungary Sri Lanka Indonesia Sweden Israel Switzerland Italy Syria Iran Tanzania Ireland Thailand Japan Trinidad & Tobago Jordan Turkey Kazakhstan Turkmenistan Kenya UAE Korea UAR (Egypt) Kyrgyzstan USA Libya UK Malaysia Ukraine Malta Uzbekistan Mauritius Vietnam Mongolia Zambia 9
- 17. Appendix D: PricewaterhouseCoopers offices and contacts PricewaterhouseCoopers is currently operating at New Delhi, Mumbai, Kolkatta, Bangalore, Chennai, Pune and Hyderabad. The firm specializes in business advisory services and provides professional services to a wide range of clients in both public and private sectors. Our office addresses along with details regarding contact persons are given below: NEW DELHI CHENNAI PricewaterhouseCoopers (P) Ltd. PricewaterhouseCoopers (P) Ltd. 2nd Floor, Sucheta Bhawan, Auras Corporate Centre, 8th Floor 11-A,Vishnu Digambar Marg, 98-A, Dr. Radha Krishnan Salai New Delhi – 110 002 Mylapore, Chennai - 600 004 Tel: +91-11-2321 0891 Tel: +91-44-28591858/1859/1860 Fax: +91-11-2321 0594/96 Fax: +91-44-28591254 Contact Person: Nityanand Gupta Contact Person: Natesan Sivasubramanian Email : nityanand.gupta@in.pwc.com Email : natesan.sivasubramanian@in.pwc.com MUMBAI PUNE PricewaterhouseCoopers (P) Ltd. PricewaterhouseCoopers (P) Ltd. Trade World, ‘C’ Wing, 305-307, Century Arcade, 9th FloorKamala Mills Compound 243-244B/2, Narangi Baug Road Senapati Bapat Marg, Lower Parel Off Bund Garden Road, Mumbai– 400 013 Pune – 411 001 Tel: +91-22-44960758/59 Tel: +91-20-6123271/3787 Fax: +91-22-495 1928 Fax: +91-20-312 1131 Contact Person: R. D. Hingwala Contact Person: Sandip Mukherjee Email : r.d.hingwala@in.pwc.com Email : sandeep.mukherjee@in.pwc.com KOLKATTA HYDERABAD PricewaterhouseCoopers (P) Ltd. PricewaterhouseCoopers (P) Ltd. Suite 9, 3rd Floor, 20-A, Park Street 6-3-550, 4th Floor, LB Bhawan Kolkatta – 700 016 Somajiguda, Hyderabad 500 082 Tel: +91-33-2226/3275/22295784 Tel. : +91-40-5566 6081, 5566 6082 Fax : +91-40-5566 6080 Fax: +91-33-2490759 Contact Person: Ashlesh Ch. Verma Contact Person: Somnath Ballav Email : somnath.ballav@in.pwc.com Email : ashlesh.c.verma@in.pwc.com BANGALORE PricewaterhouseCoopers (P) Ltd. 10th & 14th Floor, ‘C’ Wing, Mittal Tower, 47/6 M G Road, Bangalore – 560 001 Tel: +91-80-558 7239/5550899 Fax: +91-80-559 3792 Contact Person: Indraneel R. Chaudhury Email : indraneel.r.chaudhury@in.pwc.com 10