The taxes to be paid by expats depend on the residential status of the individual taxpayer. An income earned by an expatriate in India is taxable in India, regardless of the residence status. This income can be earned by working in India or by providing services in India. This income can also be subject to TDS (Tax Deduction at Source) in India.
Who pays tax in India?
'Resident' expats are subject to taxes on their worldwide income. When is an expat then a resident of India?
Expats are considered as residents if they meet one of the following criteria:
- They have lived in India for 182 days or more during the tax year (1st April to 31st March);
- They have lived in India for 60 days or more during the tax year and have been a minimum of 365 days old for the previous 4 tax years (in certain cases the 60 days requirement has been increased to 182 days).
- Non-residents are therefore only taxed on the basis of income from India, i.e. the income that originated in India. This can be income from a business in India, through the transfer of capital goods located in India (including a share in a company incorporated in India), etc.
How is the income taxed in India?
Generally, all income received or accrued in India is subject to tax.
Income from salaried employment
All salary income related to services provided in India are deemed to have originated in India, regardless of where they were received or the residential status of the recipient.
Expat employees of foreign companies (in India) who are citizens of foreign countries are not subject to expat tax if all of the following conditions are met:
- The foreign company is not involved in a trade or business in India.
- The employee does not stay in India for more than 90 days in the tax year.
- The paid compensation is not claimed by the employer as a deductible item on the taxable income in India.
Taxes for the self-employed
All persons who are self-employed in India are liable to pay tax. A company that is incorporated in India, regardless of whether it is wholly or partially owned by a foreign company, is considered as an Indian company for the applicable income tax and other taxes. It pays tax in India.
Taxes for investors
When the foreign company invests in the Indian company, the Indian entity must comply with the specific reporting guidelines. A non-compliant company may not receive further foreign investment, including foreign direct investment (FDI).
Taxes for shareholders
Shareholders pay taxes on the company's income when they receive dividends. Dividends are taxed in the following way.
If it concerns a "resident" of India - someone who, among other things, has resided in India more than 182 times - and the total dividend income exceeds 10 00 000 rupees (about 11 000 euros), the income tax is 15 % (plus surcharge, if applicable and education tax). However, in the case of a "non-resident", the total dividend income of Indian companies is exempt from income tax in India.
No double tax levy
India has entered into comprehensive double taxation treaties with 91 countries: Double Taxation Avoidance Agreement. Under the DTAA, an expat does not pay tax in the country of origin because he would have already paid that in India.
Carefully check all information about taxes
Miss Legal is of the opinion that the above information is correct, but the tax rates and rules can of course change. Therefore, do not rely solely on the information that you find through Google to determine your tax liabilities. If you have any questions, please feel free to contact the Miss Legal India team.
Get in touch with Miss Legal India to know all about employing people in India.