An expat orexpatriate is referred to as an individual who temporarily or permanently
resides and/or works in a country other than the country of his citizenship or
residence regardless of whether he has relinquished the citizen of his native
country or not. As the source of earning is another country, therefore,
taxation becomes an important aspect. Here’s a technical guide on expatriatetaxation addressing certain key aspects.
ResidentialStatus Expat Employee
In India,residential status for income tax is governed by Section 6 of the Income Tax
Act, 1961. Following is the taxation impact of the residential status of expats
in India:
Income
Residential Status
Resident and Ordinarily Resident
Resident but Not Ordinarily Resident
Non-Resident
Income received or deemed to be received in India
Yes
Yes
Yes
Income accrues or arises or deemed to accrue or arise in India
Yes
Yes
Yes
Income that accrues or arises outside India from a business controlled in India or a profession set up in
India
Yes
Yes
No
Other income
Yes
No
No
Therefore, youneed to determine your residential status as per income tax to determine which
of your incomes would be subject to expatriate taxation in India.
DoubleTaxation Avoidance Agreement (DTAA)
Citizenship isnot a criterion for determining the residential status in India as well as in many
other countries. Therefore, it can happen that you turn out to be a resident of
more than one country. Further, your income can be taxed by the country of your
residence as well as in India where you are an expat and earning your income
from. This will lead to double taxation of your income.
To avoid this,countries enter a Double Taxation Avoidance Agreement (DTAA) to avoid instances
of double taxation in such scenarios. DTAA is a detailed agreement that determines
what income shall be taxable and which country shall be allowed to collect tax.
In India, the provisions of DTAA override the income tax law unless the
provisions of income tax law are more beneficial to the assessee.
How Do ExpatsPay Tax in India?
The amount oftax that you pay will depend upon your residential status as well as expatsalary structure in India (in case of expatriate employee taxation).If you are a resident, then the normal tax rates will apply to you. Also, you
can avail of the benefit of rebates under Section 87A. However, if you are a
non-resident, then while the normal tax rates would apply, but you would become
ineligible for claiming rebate under section 87A. Also, the benefit of a higher
exemption limit of Rs. 3 lakhs and 5 lakhs for senior citizens and very senior
citizens won’t be available to you. However, being an expat, you can claim all
the benefits available as per DTAA. Therefore, if DTAA prescribes a lower tax
rate, then that will be applicable to you.
If you find expatriatetaxation in India confusing, then feel free to contact the ASC Group. Withmore than 25 years of experience, ASC has been pioneering in helping out theexpats with all the legal and taxation issues.
