Expatriates Taxation in India

India is a fast growing economy with many multinationals setting up shop in India.  This means that quite a number of Expatriates of various nationalities come into India and they would in turn like to know tax impact on their salaries earned in India and abroad.  To ascertain tax status of these expatriates in India we need to review 

1. Section 5, 6, 9 and 10 of Income Tax Act, 1961.
2. Indian Provident Fund Scheme, 1952 (specifically notification dated 1.10.2008)

Section 6 - Residence in India
Residence in India determines the taxable status of an individual in India.  The following are the various definitions under Income Tax Act, 1961 on Resident status.

Resident	1.      Was in India for a period of minimum 182 days during that year or 2.    Was in India during the year for a period of minimum 60 days and in the preceding 4 years was in India for a minimum period of 365 days
Non Resident	A person who is not a Resident is a Non Resident
Not Ordinarily Resident	1.      Non Resident in 9 out of 10 years preceding that year or 2.      In India for a period of 729 days or less during the preceding 7 years

Section 5 - Scope of Taxation

The incomes which are taxed are as given below for each category of Residency.

Resident	1.    Received or is deemed to be received in India during the year 2.   Accrues or arises or is deemed to accrue or arise in India during the year 3.   Accrues or arises outside India during the year
Non Resident	1.     Received or deemed to be received in India during the year 2.     Accrues of arises or deemed to accrue or arise in India during the year
Not Ordinarily Resident	1.    Received or is deemed to be received in India during the year 2.   Accrues or arises or is deemed to accrue or arise in India during the year 3. Accrues or arises outside India during the year provided it is derived from a business controlled in or a profession set up in India

Section 9(1)(ii) - Income deemed to accrue or arise in India

Salaries if earned in India for 

1. Services rendered in India and 
2. for the leave period which forms part of the service contract of employment

The either of the above 2 conditions if satisfied will entail taxation in India.  Section 9(1)(ii) will hold good irrespective of Residence status.

Taxation impact under Income Tax Act

Due to operation of section 9(1)(ii) salary received for services rendered in India will be taxable in India irrespective of place of receipt of salary.  For example if an Expatriate receives salary of Rs.100,000 in India and $5,000 in US, for services rendered in India, then the entire amount of Rs.100,000 and $5,000 are taxable in India

Section 10(6) - Exceptions to the above taxation Rule

Exceptions to the taxation are provided for 

1. Employees of Consulate etc
2. Remuneration paid by a foreign enterprise for service rendered in India if 
• the foreign enterprise is not engaged in any trade or business in India
• the employee stay is not more than 90 days in the year
• the remuneration paid by the foreign enterprise is not deducted from income of the enterprise for purpose of income tax in India

Provident Fund
International worker is defined to include a Foreign National working in India.  India has signed social security agreements till todate with 3 countries namely Belgium, France and Germany.  Foreign Nationals who belong to these countries do not come under the definition of International workers.  Other Foreign Nationals should contribute the Provident Fund Scheme in India.  Provident Fund is to be 

1. Deducted at 12% - employee contribution and 12% - employer contribution - total 24% contribution
2. To be deducted on the full salary both received in India and also abroad and also from the parent company abroad

Conclusion

Expatriate employees come under purview of income tax and provident fund acts.  There are certain exemptions which can be claimed.  Taxation aspects are quite clear and hence care should be taken to abide by them