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Employment Taxation for Expats in India

Submitted: October 2013

Residence

As an expat working for less than 182 days (not necessarily continuously) in any one year, you will be considered non-resident or NR. Non-residents are only taxable on Indian source income, and on income received or deemed to be received in India or deemed to be accruing or arising in India. Once you have gone over this period you status will change.

Generally you will be considered resident once you have stayed India for 182 days in one calendar year. You will also be considered resident if you stay in India for more than 60 days in a year if you have stayed in India for more than 365 days total in the previous four years. The 60 days above is increased to 182 days if you are a citizen of India or of Indian origin who has returned home for the purposes of a visit; though the government has said it intends to reduce the 182 days to 59 days in the near future. Residents are taxable on their worldwide earnings.

However there is an interim status called ‘resident but not ordinarily resident’ or NOR which generally applies to expats who come to work in India on a continuing basis and exceed the 182 day limit. This status generally lasts for the first two years of employment, after which you would become taxable on your worldwide earnings as a resident. Otherwise the rule is that you can be an NOR under the following conditions:

  • you have been non-resident in nine out of the ten preceding years, or
  • you have not been in India for more than a total of 729 days during the seven preceding years.

NORs are taxable on the same basis as non-residents.

Tax rates and allowances

The tax year runs from 1 April to 31 March. Your employer will deduct Pay As You Earn (PAYE) tax from your wages or salary on a monthly basis. If the tax payable in any year exceeds Rs10,000 you may be liable to pay advance tax in September, December and March. However your PAYE deductions count against the advance tax, so if your employer has calculated correctly, there should be nothing to pay. At the end of the tax year your employer will give you a certificate of salary and tax deducted, you must keep this as you will have to produce it on demand if the assessor requests it. 

Indian personal tax allowances are called the Basic Exemption Limit (BEL) and are currently Rs200,000 per year if you are less than 60 years old. There are also various deductions that can be set against your income. The income tax rates for 2013/2014 financial year are as follows:

Yearly taxable income (Rs)Rate
BEL  to   500,000 10%
500,001 to 1,000,00020%
1,000,001 to 10,000,00030%
10,000,001 and above30% plus a surcharge

The surcharge above is 10% of the tax payable on earnings over RS10,000,000.

An additional ‘tax’ called an education cess is levied at a rate of 3% of tax payable.

You will have to register for tax and apply for a Permanent Account Number if your earnings are going to exceed the BEL. Non-residents apply using form 49AA or 49A depending on status. The application fees which can be paid in various forms. There is a guide to filling out form 49AA here, and one for 49A here, and instructions are available here.

You will be required to submit an annual tax return, generally to the local tax office, by 31 July following the end of the tax year. If your income exceeds RS500,000 the return will have to be filed electronically. Payment of any outstanding tax must be made at the same time the return is filed. Penalties apply for late or incorrect returns and late payment.

If you are self employed you will be subject to advanced tax which is paid in instalments during the course of the year. The size of the instalments is based on your estimated earnings for the year. After the end of the tax year you send in a return and the instalment payments are credited against your final tax liability.

 

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