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Overview of Tax Issues for Expats in India

Submitted: October 2013

The US tax year runs from the 1 January to the 31 December.

Tax Residence

When coming from abroad to the USA for employment it is important to understand the difference in terms of tax between being resident, resident but not ordinarily resident (NOR) and non-resident. If you are physically present in India for more than 182 days in any tax year will generally be considered an Indian resident, prior to that you will be non-resident. However you can be an NOR for your first two years of employment as an expat. For more details see: Taxation – Employment Taxation for Expats in India.

As a resident you will have to pay US tax on any income and gains which arise in the India and abroad. As a non-resident or NOR you are only taxed on income and gains arising in India.

Whatever your residence status it is important to be aware if a tax treaty exists between your country of origin, or other country that is a source of overseas income, as these may effect the tax you pay on any money you receive from abroad. For more details see: Taxation - Tax Treaty Considerations for Expats in India.

Taxes

The main taxes on residents in India are income taxes with graduated rates from 10% to 30% and an educational cess of 3% of income tax payable. There is a basic exemption limit (BEL) of Rs200,000 below which you pay no tax. To ensure you pay the correct amount of tax on your income, you should apply for a Permanent Account Number (PAN) upon arrival. Your actual overall tax rate depends on how much you earn. For more details see: Taxation - Employment Taxation for Expats in India.

If you are working in the India for a US resident employer, they will deduct tax and the cess directly from your wages or salary each time you are paid. You may be required to make advance payments of tax, especially if you have several sources of income. You may also be required to fill in a tax return at the end of the year.

If you come to India to set up in business, you have the choice of being self-employed, or starting your own company. Which path suits you best will depend on your circumstances. If you form a company, it will be liable for corporate tax at a rate of 30% on its Indian and worldwide income and gains. If you operate a foreign company in India the corporate tax rate is 40%. Income and long term capital gains are taxed at different rates, short term capital gains are taxed as ordinary income. For more details see: Taxation - Business Taxation for Expats in India.

Investment tax

Investment tax mainly applies mainly to interest on savings and bonds, dividends and rental income. Interest from Indian banks is paid with a 10% withholding tax deducted at source as long as you have provided them with your PAN. Dividends from Indian companies are paid without deductions to residents and must be reported on your tax return. For more details on investment tax generally see: Taxation - Investment Taxation for Expats in the USA. The tax treatment of investment income from a country outside India can depend on whether there is a tax treaty between the two countries. For more details see: Taxation - Tax Treaty Considerations for Expats in the USA. Rental income is taxed as ordinary income but there are deductions that are factored into the calculation of tax payable.

 

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