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  • Service: Tax, International Executive Services
  • Type: Regulatory update, Survey report
  • Date: 2/26/2014

Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation


Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?


An individual’s tax return must be filed by 31 July immediately following the end of the tax year on 31 March. There is no provision for extension of the filing date.


What is the tax year end?


The tax year ends on 31 March. The income earned during a year is taxable in the relevant year. The year in which income is earned is known as the previous year or tax year. From a tax perspective, the year subsequent to tax year is known as the assessment year.


What are the compliance requirements for tax returns in India?


An individual is required to obtain a registration with the tax authorities i.e. Permanent Account Number (PAN). PAN is a unique identification number given by the Indian tax authorities. PAN is required to be quoted on all the correspondence with the tax authorities.


For FY 2013-14, an individual is required to file a tax return in India only if his/her taxable income exceeds the prescribed limit (INR200,000).


Further, for FY 2012-13, It is mandatory for every person (not being a co. or a person filing return in ITR 7) to e-file the return of income, if total income exceeds Rs. 5,00,000 and for every person claiming tax relief under Section 90, 90A or 91 (Treaty benefits).


Further, every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India would be mandatorily required to furnish a return of income irrespective of the fact whether the resident taxpayer has taxable income or not.


Tax is required to be withheld at source on salaries, professional fees, rent, interest, dividends, etc. at the time such income is credited to the account of the payee or at the time of payment, whichever is earlier. In case the amount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advance/self assessment tax.


Advance tax is payable by the taxpayer during the tax year if the estimated taxes (net of taxes withheld) exceeds INR 10,000. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. It is payable in three installments by individuals as follows:


  • 30 percent is payable by 15 September
  • 60 percent is payable by 15 December
  • 100 percent by 15 March.

In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return.

 

Further, a resident senior citizen, not having any income from a business or profession, shall not be liable to pay advance tax (applicable from tax year 2012-13).


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Tax rates

What are the current income tax rates for residents and non-residents in India?


Tax rates for individuals are common for all, irrespective of their residential status. The proposed income tax rates for assessment year 2015-16 (tax year 2014-15) are as follows:


Proposed Income tax table for 2014-15


Taxable income bracket Total tax on income below bracket Tax rate on income bracket
From INR To INR INR Percent
0 200,000* 0
200,001 500,000 10% of the excess over INR200,000 10
500,001 1,000,000 INR30,000 + 20% of the excess over INR500,000 20
1,000,001 No limit INR1,30,000+ 30% of the excess over INR1,000,000 30

Surcharge at the rate of 10% is payable where the total income exceeds 1 crore and Education cess at the rate of 3 percent is payable on the amount of tax and surcharge, if applicable. Therefore, the effective maximum marginal rate would be 33.99 percent.


Surcharge introduced @10 percent if taxable income exceeds INR 10,000,000.


  • * 250,000 in case of a resident individual of the age of 60 years or above (below 80 years).
  • * 500,000 in case of a resident individual of the age of 80 years or above.
  • Tax rebate of up to INR 2,000 per annum introduced for resident individuals, with total income up to INR 500,000 per annum.

There is no provision for joint filing of the return of income. There is no distinction amongst individuals, whether married, unmarried, or having children and the same rate is applicable to all.


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Residence rules

For the purposes of taxation, how is an individual defined as a resident of India?


An individual is said to be resident in India in any tax year if he/she is:


  • present in India in that year for a period or periods totaling 182 days or more or
  • present in India for at least 60 days or more during the tax year (182 days or more for a citizen of India/person of Indian origin on a visit to India; 182 days or more for a citizen of India who leaves India for employment abroad or as member of a crew of an Indian ship) and 365 days or more during the preceding four tax years.

An individual who does not satisfy either of the above conditions is a non-resident (NR). A not ordinarily resident (NOR) is an individual who:


  • has been non-resident in India in nine out of the ten tax years preceding that year or
  • has during the seven tax years, preceeding that year, been in India for a total period of 729 days or less.

Residents are taxed on worldwide income. However, NR and NOR are generally taxed only on Indian-sourced income.


Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.


There is no de minimus number of days rule in respect of residency start/ end date. However an individual visiting India for the first time would remain NR if his stay during the tax year does not exceed 182 days.


In case his/her stay exceeds 182 days, he/she would be NOR. He/She is likely to maintain the NOR status generally for first two to three years of his/her stay in India.


What if the assignee enters the country before their assignment begins?


In India the residential status is determined based on the individual's total physical stay in India during the relevant tax year. Accordingly, the days spent in India prior to start of the assignment are considered for determining the residential status of the individual in India.


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Termination of residence

Are there any tax compliance requirements when leaving India?


Subject to notified exceptions, persons not domiciled in India who visit India in connection with business, profession, or employment and who derives income from any source in India, can leave India only after getting a no objection certificate from the tax authorities to do so. The tax authorities shall give such a certificate when the person submits an appropriate undertaking from his employer/ payer of income, in respect of payment of taxes due from such person in India. However, there are no special formalities for terminating residence.


What if the assignee comes back for a trip after residency has terminated?


In India, the residential status is determined each year based on the total physical stay of the individual in the concerned tax year. This is irrespective of the purpose of stay of assignee in India. Also, there is no concept of part/split residency in India.


Communication between immigration and taxation authorities


Do the immigration authorities in India provide information to the local taxation authorities regarding when a person enters or leaves India?


There is no formal system under which immigration authorities in India provide information to local taxation authorities. However, recently tax authorities have started requesting such details from the immigration authorities on a regular basis.


Filing requirements


Will an assignee have a filing requirement in the host country after they leave the country and repatriate?


An individual is required to file return of income if there is taxable income in India exceeding the prescribed exemption limit. This is irrespective of the presence of assignee in India.


Further, from FY 2012-13 every resident and ordinary resident of India having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India would be mandatorily required to furnish a return of income disclosing details of such assets irrespective of the fact whether the taxpayer has taxable income or not.


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Economic employer approach1

Do the taxation authorities in India adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in India considering the adoption of this interpretation of economic employer in the future?


There are no defined rules in this respect. However, Organization for Economic Cooperation and Development (OECD) commentary is commonly referred by tax authorities while interpreting the treaty provisions.


De minimus number of days2


Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?


There is no de minimus number of days for applying the economic employer approach.


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Types of taxable compensation

What categories are subject to income tax in general situations?


In general, income from employment includes all compensation, in-cash or in-kind, which is due to or received by an employee in a tax year. Taxable compensation includes the following:


  • salary, wages, bonuses, allowances, and other cash compensation for services rendered
  • income tax paid by the employer on behalf of the employee
  • specified perquisites.

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Tax-exempt income

Are there any areas of income that are exempt from taxation in India? If so, please provide a general definition of these areas.


Generally, subject to certain conditions, the following items of compensation are not taxable:


  • certain travel/tour allowances
  • reimbursement of medical expenses up to specified limits
  • medical expenses of an employee or any member of his/her family incurred outside India
  • leave travel concession
  • allowance granted to meet payment of rent towards accommodation
  • tax borne by the employer on non-monetary perquisites
  • telephone expenses.

Certain travel/tour allowances


Allowances granted to meet the cost of travel on tour or on transfer, including sums paid in connection with the transfer, packing, and transportation of personal effects on such transfer, are exempt to the extent to which such expenses are actually incurred.


Reimbursement of medical expenses


Reimbursement of medical expenses actually incurred by the employee for himself/herself or any member of his/her family is exempt up to INR 15,000 per tax year. However, any reimbursement of costs of hospitalization in a recognized hospital in India is fully exempt. Employers’ contributions to health insurance plans abroad would be taxable in India only to the extent the employee has an interest in the plan vested in him/her during the tax year.


Medical expenses of an employee or any member of his/her family incurred outside India


Medical expenses of an employee or any member of his/her family incurred outside India is exempt to the extent permitted by Reserve Bank of India. The cost of a stay abroad of the employee or a family member and one attendant is also exempt to the extent permitted by the Reserve Bank of India.


Leave travel concession


Leave travel concession granted to the employee for himself/herself and his/her family for proceeding on leave to any place in India is exempt with respect to two journeys performed in a block of four calendar years, subject to fulfillment of certain conditions. The current block is 2014-2017.


Allowances for payment of rent towards accommodation


Allowance granted to meet payment of rent in respect of residential accommodation occupied by the employee is exempt, subject to certain limits.


Tax borne by the employer on non-monetary perquisites


Tax borne by the employer on non-monetary perquisites provided to the employee is exempt from tax provided the employer does not claim it as a deduction against its taxable income.


Telephone expenses


Telephone (including the mobile phone) expenses, paid by the employer on behalf of the employee or reimbursed by the employer based on actual expenses of the employees, is exempt from taxation.


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Expatriate concessions

Are there any concessions made for expatriates in India?


Certain exemptions are available to foreign nationals and/or non-residents, subject to fulfillment of prescribed conditions. The exemptions available include the following:


  • Remuneration for services rendered by a foreign national, employed by a foreign enterprise during his/her stay in India, is exempt if:
    1. the total period of the stay in India does not exceed 90 days in a tax year;
    2. the foreign enterprise is not engaged in any trade or business in India; and
    3. the remuneration is not charged to an entity subject to Indian income tax.
  • Remuneration received by or due to a non-resident foreign national for services rendered in connection with employment on a foreign ship, where the total period of the stay in India does not exceed an aggregate period of 90 days in a tax year, is exempt from tax.
  • Remuneration received by a foreign national working as an employee of a foreign government is exempt from tax, if the remuneration is received in connection with training activity in an undertaking, office, or company owned by the government.
  • Remuneration from any cooperative technical assistance program in accordance with an agreement entered into by the central government with a foreign government is exempt from tax, provided:
    1. the remuneration is received from the foreign government
    2. the employee is required to pay income tax to another foreign government on income arising outside India.

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Salary earned from working abroad

Is salary earned from working abroad taxed in India? If so, how?


Compensation received outside India for work performed by an employee abroad, which is not in connection with the services being rendered in India, is not taxable in India, unless the same is received in India, where the employee is NR or NOR in India.


If the expatriate qualifies as an ordinary resident of India, the salary earned for working abroad will be taxable in India even if the same is received outside India.


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Taxation of investment income and capital gains

Are investment income and capital gains taxed in India? If so, how?


Income from the transfer of a capital asset situated in India is deemed to accrue in India. Hence, all individuals are liable for tax on capital gains arising from the transfer of capital assets in India. Securities Transaction Tax (STT) is leviable on transactions of equity shares in a company, units of an equity oriented Mutual Fund and derivatives which are routed through any recognized stock exchange in India.


Short-term capital gains (i.e., capital gains on shares or any other security listed on a recognized stock exchange in India or on units of specified mutual funds held for not more than one year, and in case of other assets held for not more than three years) are taxed in the same manner as ordinary income. Short-term capital gains arising on transfer of securities liable to STT are taxed at a rate of 15 percent (plus surcharge, if any plus education cess).


Long-term capital gains arising on transfer of Equity shares or units of Equity Oriented Mutual Funds liable to STT are exempt from tax.


Long-term capital gains from transfer of other assets are taxed at a concessional rate of 20 percent plus surcharge, if any plus education cess. In determining such long-term capital gains, the cost of assets is indexed upwards for inflation as per the notified index table.


There are exemption provisions in respect of long term capital gains on re-investment in specified assets/ securities.


Securities transaction tax leviable varies from 0.017 percent to 0.25 percent of the transaction value, depending on the type of securities transacted.


Dividends, interest, and rental income


Dividend from shares held in Indian companies and specified mutual funds are exempt from tax. However in case of an Ordinary resident, dividend income from investments outside India is taxable, subject to treaty benefits. Expenses incurred specifically for earning such taxable investment income are deductible.


Interest income earned in respect of the investments made in India is subject to tax in India. Also, in case of an Ordinary resident, interest income from foreign investment is taxable, subject to treaty benefits.


Any rental income is subject to tax in India. The expenses incurred in paying any municipal taxes and mortgage interest and a standard deduction in respect of other expenses is allowable while computing the taxable income.


Gains from stock option exercises


Benefits from Employees Stock Option Plan (ESOP) are taxed as perquisite in the hands of employees. The taxability of a benefit arising out of ESOPs is triggered at the time of allotment of the specified securities. The perquisite value is determined as the Fair Market Value (FMV) on the date on which the “option” is exercised by the employee as reduced by the amount actually paid by, or recovered from the employee in respect of such ESOPs. FMV means the value determined in accordance with the method prescribed by the Central Board of Direct Taxes.


Further, if after exercising the options, the employee holds the shares for some time and sells the same subsequently, the difference between the sale consideration and the FMV considered for calculating the perquisite value would be subject to capital gains tax. Depending on the period of holding the capital gains would be considered as short-term/long-term.


Principal residence gains and losses


There is no specific provision governing the taxability of gains and losses of principal residence.


Capital losses


Subject to certain conditions, the capital losses incurred by the assignee in India can be set-off only against the capital gains during the tax year. If the loss cannot be set-off, the amount can be carried forward to subsequent tax years to be set-off against capital gains.


Gifts


Any sum(s) received (except for sums received from specified relatives and in certain other specified situations) by an individual from any person in cash/cheques/draft/any other mode or by way of credit or otherwise than as consideration for goods and services is taxable as "income from other sources." However, the total of such receipts to the extent of INR 50,000 is exempt.


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Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in India? If so, please discuss?


For non-residents, capital gains arising from transfer of shares or debentures of an Indian company are calculated in the same foreign currency as was initially used to purchase such shares or debentures and the cost inflation index is not applied to such gains. Long-term capital gains arising from the transfer of specified bonds or Global Depository Receipts issued in foreign currency are taxed at the rate of 10 percent.


Exemption from long-term capital gains may be claimed by making investment in residential house and/or certain bonds, subject to specified conditions.


Are there capital gains tax exceptions in India? If so, please discuss?


Pre-CGT assets


Not applicable.


Deemed disposal and acquisition


Not applicable.


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General deductions from income

What are the general deductions from income allowed in India?


Deductions from income, subject to fulfillment of certain conditions, include the following.


  • Specified donations to institutions in India: 50 percent of donation subject to 10 percent of gross income. Certain donations are eligible for 100 percent deduction.


    Further, deduction in respect of donations made to specified funds, charitable institutions, scientific research, or rural development institutions, in excess of INR 10,000, will be allowed only if the donation is made other than in cash.

  • Health insurance premium payments to specified insurers: Deductions of up to INR 15,000 in respect of insurance of the individual or his/her family members. (Up to INR 20,000 in case the person insured is a senior citizen i.e. individual of age 60 years or more during the FY) Additional deduction of up to INR 15,000/INR 20,000 is available in respect of health insurance premium paid for parents of the individual/Senior citizen.


    Further, it is proposed to include a payment made up to INR 5,000 per annum (including cash payment) towards preventive health check-up of oneself, one’s spouse, dependent children and parent(s) within the current overall deduction limits for health insurance premium/contribution payments.

  • A deduction of up to INR 50,000 is available to a person resident in India suffering from disability (INR 100,000 for persons with severe disability) subject to certain conditions. Deduction of up to INR 50,000 in respect of medical treatment of himself/herself or his/her dependents, for specified diseases (up to INR 60,000 in case of senior citizens i.e. individual of age 60 years or more during the FY).
  • A deduction of up to INR 10,000 per annum has been allowed for interest on deposits (excluding time deposits) in a savings account with specified banks, co-operative societies, and post offices, for individuals/ Hindu undivided family (HUF).
  • A Income- tax deduction of 50 percent for investments up to INR 50,000 made by retail investors (whose annual income is below INR 12 lakhs from FY 2013-14) with a lock-in period of three years has been allowed under a new investment scheme called Rajiv Gandhi Equity Savings Scheme.

A deduction from the income of an individual not exceeding INR100,000 is allowed with respect to sums paid or deposited in the tax year out of income chargeable to tax, in certain specified schemes.


The following are some of the investments/payments qualifying for the deduction:


  • Insurance Premium, subscription to National Savings Certificate Scheme, contribution to recognized Provident Fund or to a Public Provident Fund in India, subscription to National Saving Scheme.
  • Repayment of a loan or payment towards cost of purchase/construction of new residential house.
  • Subscription to units of mutual fund under specified schemes or to approved issues (proceeds to be used for development, and so on. of infrastructure facilities) of equity shares/debentures made by public companies or public financial institutions in India.
  • Employer contribution to the New Pension Scheme (NPS) to the extent of 10 per cent of base salary.

Further, deduction for premiums paid for life insurance policies issued on or after 1 April 2012, are available only if the premium for any year is less than 10 percent (20 percent for policies issued up to 31 March 2012) of the actual capital sum assured. In case the premium for such policies exceeds 10 percent of the actual capital sum assured, the deduction for the premium shall be allowed only to the extent of the premium up to 10 percent of the actual capital sum assured.


However, from 1 April 2013, in case of person with specified disability/severe disability or suffering from specified disease or ailment, the above percentage shall be 15%.


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Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in India?


As per the provisions of Indian company law, an Indian company is not allowed to bear any tax on behalf of its employees. In case of individual employed with foreign companies the company normally deposits the tax directly with the tax authorities by way of withholding taxes.


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Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in India? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), and so on.


The India tax system runs on pay-as-you-earn basis in respect of salary payments. Accordingly, tax needs to be withheld and deposited with the tax authorities on a monthly basis. If the taxes are not deducted interest is levied at the rate of 1 per cent per month or part of the month for the months for which tax has not been deducted. If the taxes deducted are not deposited into the Government treasury, there would be an interest charged at the rate of 1.5 percent per month or part of the month leviable for all the months for which taxes have not been paid till date of the payment of tax. The tax withheld needs to be deposited within seven days from the end of the month (for the month of March tax may be deposited on or before 30 April and 7th April where tax on non-monetary perquisites are borne by employer).


Pay-as-you-earn (PAYE) withholding


Every person has an obligation to deduct tax monthly from employees' remuneration at the time of payment thereof. Tax is to be deducted on the estimated income of the employee after allowing certain permissible deductions.


Even foreign employers are not exempt from such withholding tax obligations.


Advance tax installments


In case the amount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advance tax.


Advance tax is payable by the individual during the tax year. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. It is payable in three installments as follows:


  • 30 percent is payable by 15 September
  • 60 percent is payable by 15 December
  • 100 percent by 15 March.

A resident senior citizen, not having any income from a business or profession, shall not be liable to pay advance tax.


Shortfall/delay in payment of advance tax will attract interest.


When are estimates/prepayments/withholding of tax due in India? For example: monthly, annually, both, and so on.


As discussed earlier, an employer is liable to deduct tax at the time of payment of salary to its employees. The tax deducted is to be deposited with the central government within seven days from the end of the month in which tax is deducted (except the tax deducted in the month of March may be deposited on or before 30 April).


Furthermore, an annual certificate is required to be issued to the employee in respect of tax deducted at source, within two months from the end of the tax year. The employer is also required to submit quarterly withholding tax statements in respect of the tax deducted at source during the year.


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Relief for foreign taxes

Is there any Relief for Foreign Taxes in India? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?


A resident in India is entitled to claim credit for foreign taxes paid on foreign-sourced income against the Indian tax payable on such income:


  • where agreement for avoidance of double taxation exists between the two countries, in accordance with the terms of that agreement
  • in other cases, at the lower of the foreign or Indian rates of tax, or at the Indian rate of tax, if both the rates are equal.

India has Double Taxation Avoidance Agreement (DTAA) with more than 100 countries (Comprehensive and limited).


There is no specific provision for the employee to consider FTC benefit at the time of withholding taxes from salary income. In the absence of aforesaid specific provision, the employee may consider to claim said treaty benefit at the time of filing his/her personal tax return.


Relief under the DTAA will be available only if a Tax Residency Certificate (‘TRC’) is obtained by a Non- Resident taxpayer from the Government of other country or specified territory of which he/she is a resident and the TRC contains prescribed particulars (of the taxpayer being a resident in any country or specified territory outside India.


Further TRC would be regarded as a necessary but not sufficient condition to avail the benefits under the DTAA.


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General tax credits

What are the general tax credits that may be claimed in your country? Please list below.


The Indian tax law does not have any specific provisions for tax credit. Deductions from the taxable income, subject to certain limits are available (as discussed in the earlier sections).


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Sample tax calculation3

This calculation assumes a married taxpayer resident in India with two children whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.


2012
USD
2013
USD
2014
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = INR54.47.


Indian tax year runs from 1 April to 31 March.


Other assumptions


  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to India.
  • The company car is used for business and private purposes and originally cost USD 50,000.
  • Moving expense reimbursement are paid at the time of relocation.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Year-ended 2011-2012
INR
2012-2013
INR
2013-2014
INR
Days in India during year 90 365 275
Earned income subject to income tax
Salary 1,361,750 5,447,000 4,085,250
Bonus 272,350 1,089,400 817,050
Cost-of-living allowance 136,175 544,700 408,525
Taxable housing allowance 124,585 498,340 373,755
Moving expense reimbursement 0 0 0
Home leave 0 272,350 0
Education allowance 40,853 163,410 122,558
Motor car 9,900 39,600 29,700
Total earned income 1,945,613 8,054,800 5,836,838
Other income 81,705 326,820 245,115
Total income 2,027,318 8,381,620 6,081,953
Deductions: 0 0 0
Total taxable income 2,027,318 8,381,620 6,081,953

Calculation of tax liability


2011-2012
INR
2012-2013
INR
2013-2014
INR
Taxable income as above 2,027,318 8,381,620 6,081,953
Taxes 460,195 2,344,486 1,654,586
Surcharge NIL NIL NIL
Education Cess 13,806 70,335 49,638
Indian tax thereon 474,001 2,414,821 1,704,223
Less:
Domestic Tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Indian tax 474,001 2,414,821 1,704,223

Taxable housing allowance


2011-2012
INR
2012-2013
INR
2013-2014
INR
Actual rent (assumed INR700,000 per year) 175,000 700,000 525,000
Actual housing allowance 163,410 653,640 490,230
Least of the following is exempt:
Excess of rent paid over 10% of salary 38,825 155,300 116,475
50% of basic salary* 680,875 2,723,500 2,042,625
Actual housing allowance 163,410 653,640 490,230
Housing allowance exempt 38,825 155,300 116,475

*Assuming that the expatriate is residing in a Metro city. In case of a non-metro city, the percentage is 40 percent.


Calculation of perquisite value in hands of employee


2011-2012
INR
2012-2013
INR
2013-2014
INR
Company car 81,705 326,820 245,115
Perquisite value 9,900 39,600 29,700

* Assumed that the cubic capacity of car exceeds 1.6 litres.


Total tax burden


2011-2012
INR
2012-2013
INR
2013-2014
INR
Total Indian tax 474,001 2,414,821 1,704,223



1 Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home.


2 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.


3 Sample calculation generated by KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative, based on the tax rates applicable as per the Indian Finance Act 2011 and the rates proposed by the Finance Bill, 2012.




© 2014 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

 

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Taxation of international executives