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India’s booming economy and diverse work culture attract a significant number of foreign professionals each year working in global organizations. This involves the movement of skilled professionals across the globe, resulting in the need for tax and regulatory expatriate compliance in the visiting country. However, navigating the tax system as an expat can be a complex endeavor. This guide delves deeper into expatriate taxation in India, equipping you with the knowledge and practical steps to manage your tax obligations effectively.
An expatriate is an individual residing in a country other than their country of citizenship, typically for temporary purposes related to employment. This relocation may occur either independently or as part of a work-related assignment facilitated by an employer, which could be a university, corporation, non-governmental organization, or governmental entity.
Expatriates are people who work in a different country for a short time (1-6 months) or a longer time (6 months—5 years) and then return to their home country after their assignments are over. The Visiting country is also referred to as the host country.
Expatriates on long-term assignments are frequently qualified for various benefits in the form of perquisites provided by the company, along with a tax burden in the host country. These expatriate compliance are intended to guarantee that the workers’ level of living in their new country is equal to that of their native country.
In India, income earned by foreign expatriates is considered as received in India for services rendered, according to section 9(1)(ii) of the Income Tax Act. This income is categorized under the “salaries” head and is subject to taxation in India. The explanation provided within the said section clarifies that salary income earned for services performed within India is deemed as income earned within the country. Hence, regardless of the individual’s residential status, such salary is liable to taxation in India. The salary received in foreign currency in the country of expat’s citizenship is converted into Indian Rupee (INR), and tax is calculated on total Indian currency value. The rate used to compute tax applicable is the telegraphic transfer buying rate used by the State Bank of India (SBI)
Further, any income other than salary earned by the expat during his visit to India from Indian sources is liable to be taxed in India, and the same needs to be disclosed in an Indian tax return.
In India, taxation is based on residential status and residential status is determined based on your period of stay in India. Accordingly, a person can be:
Individuals who live in multiple countries need to determine their primary place of residence to ensure that they are not paying taxes in more than one country. The tie breaker rule for residential status refers to the criteria used to decide an individual’s primary place of residence for tax purposes.
Several factors are typically considered when determining an individual’s residential status, including:
Individual’s permanent home: The country where the individual’s primary home is located is likely to be considered their primary place of residence.
Location of the individual’s spouse and dependents: The country where the individual is married and has dependents will become the primary place of residence.
Location of employment: If an individual is employed in a country other than their home, then residential status will be determined by the place of employment.
Location of the individual’s driver’s license, voting registration, and bank accounts: These documents are important factors that can be used as tiebreakers when deciding an individual’s primary place of residence.
Intention: An individual’s intention to reside in a country is an important factor to consider when determining their residential status.
Salaries earned by Expatriates are subjected to tax in the visiting country. Accordingly the income earned in India is subject to tax in India as per prevailing slab rates applicable at the time. Further, there are two tax regimes in India: one is the Old Tax Regime, and one is the New Tax Regime. A person can opt for any tax regime that is suitable for filing a tax return in India. Also, In the case of the New Tax Regime, a person cannot claim the deductions/exemptions, but in the old tax regime, a person can claim the various deductions/exemptions.
Income tax slab rates for FY 2024-25
| Old regime | |
| Slabs | Individual |
| Up to Rs.2,50,000 | Nil |
| Rs.2,50,001 to Rs.3,00,000 | 5% |
| Rs.R3,00,001 to Rs.5,00,000 | 5% |
| Rs.5,00,001 to Rs.10,00,000 | 20% |
| Above Rs.10,00,000 | 30% |
| New regime | |
| Slabs | Individual |
| Up to Rs 3,00,000 | Nil |
| Rs.3,00,001 to Rs.6,00,000 | 5% |
| Rs.6,00,001 to Rs.900,000 | 10% |
| Rs.9,00,001 to Rs.12,00,000 | 15% |
| Rs.12,00,001 to Rs.1500,000 | 20% |
| Above Rs.15,00,000 | 30% |
The location where your income originates plays a crucial role. Salary earned while working in India is taxable regardless of your residential status. However, income from overseas sources, like rental income or investments held abroad, might not be taxable in India if you’re a non-resident.
India has engaged in 94 double taxation avoidance agreements (DTAA) and 10 Tax Information Exchange Agreements. Residents of countries with which India has a DTAA can benefit from either tax exemption in one of the countries or the crediting of taxes paid in their country of residence. Therefore, if tax has been deducted in India with which India has a DTAA, the taxpayer, subject to conditions outlined in the Income Tax Act and DTAA, may claim credit for the tax paid in India while filing the tax return of the home country.
Expatriates liable to pay taxes in India must apply for a tax registration number, known as a Permanent Account Number (PAN), with the Indian Income Tax Authorities using the relevant forms and accompanying documents. PAN is typically allocated within 7 to 10 days of document submission. Immediate application for PAN upon arrival is essential as it is necessary for foreigners’ registration with the Foreigners’ Regional Registration Office (FRRO).
Foreign nationals entering India on a long-term visa that lasts longer than 180 days are required to complete their FRRO registration within 14 days of their arrival. This registration needs to be renewed periodically during their service tenure in India.
Employers are subject to the Employees’ Provident Fund (EPF) scheme in India. As per EPF scheme provisions, both the employer and employee contribute 12% of the monthly basic salary of the employee. 8.33% of the employer’s contribution is directed toward the Employee’s pension fund, the remaining 3.67% is towards the Employee’s Provident Fund, and the employee’s entire share is contributed towards the Employee’s Provident Fund. However, expatriates from countries with which India has signed a Social Security Agreement (SSA) and possess a Certificate of Coverage (COC) from their home country are exempted from contributing to social security in India upon furnishing the COC to EPF authorities in India.
In situations where employees work in a foreign country and contribute to its social security, but their employment term is brief, they may be unable to avail of its benefits. In such cases, employees can request exemption from the foreign country’s social security as long as they contribute to their home social security system, supported by a certificate from the relevant department.
The deposited amount in the EPF scheme can be withdrawn by expatriates under specific circumstances, with the withdrawn amount disbursed to either the assignee’s bank account or the employer’s bank account in India.
| Particulars | PF Withdrawal | Pension Withdrawal |
| With Social Security Agreement (SSA) | As per the Social Security Agreement (SSA) provisions | As per the Social Security Agreement (SSA) provisions |
| Without Social Security Agreement (SSA) | After attaining the age of 58 years, or due to retirement on account of permanent incapacitation certified by a medical practitioner. | After attaining the age of 58 years, subject to fulfilling necessary conditions. |
Before departing India, expatriates must acquire a tax clearance certificate from the competent authority, affirming the absence of any outstanding tax liabilities. This certificate is mandated if the individual’s continuous presence in India exceeds 120 days.
Living as an expat in India is an enriching experience, but it requires careful planning for taxation and compliance. Understanding local tax regulations and seeking professional advice to manage your finances effectively is essential. Stay updated with visa requirements and legal obligations, and ensure you obtain necessary documentation such as a tax residency certificate, FRRO registration, withholding taxes, social security obligations, tax return filing, and an Income Tax Clearance Certificate before leaving the country. Being well-prepared and informed will help you navigate these complexities and enjoy your time in India to the fullest.
At Mercurius, our dedicated team of professionals provides comprehensive support for expats, covering all your taxation, registration, compliance, and paperwork needs. Our professionals excel in repatriation assistance, tax consultation, compliance services, tax return preparation, annual tax equalization calculations, payroll processing, and handling assessments, appeals, representation, and litigation matters. If you need personalized assistance or have any questions, please don’t hesitate to contact us.
